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Vol. 29
January 2003
E D U C AT I O N F U N D
False Claims Act and
Qui Tam Quarterly Review
1 FALSE CLAIMS ACT
AND QUI TAM DECISIONS
Arbitrability of FCA Claims
U.S. ex rel. Schultz v. Cancer Treatment Centers of
America (N.D. Ill. Nov. 4, 2002) . . .p. 16
FCA Liability of Government Entities
First Amendment/Media Access
U.S. v. Erie County Medical Center (W.D.N.Y.
Oct. 30, 2002) . . . . . . . . . . . . . . . . . .p. 1
U.S. ex rel. Franklin v. Parke-Davis (D. Mass.
Oct. 10, 2002) . . . . . . . . . . . . . . . . .p. 17
Falsity of Claim
In re Search of 1372 Boggs Drive (M.D.N.C.
Oct. 15, 2002) . . . . . . . . . . . . . . . . .p. 18
U.S. ex rel. Mathews v. HealthSouth Corp.
(5th Cir. Oct. 22, 2002) . . . . . . . . . . .p. 2
U.S. ex rel. Aflatooni v. Kitsap Physicians Service
(9th Cir. Dec. 16, 2002) . . . . . . . . . . .p. 3
21 LITIGATION DEVELOPMENTS
False Certification
U.S. ex rel. Pogue v. Diabetes Treatment Centers of
America (D.D.C. Dec. 18, 2002) . . . .p. 5
Section 3730(e)(4) Public Disclosure
Bar and Original Source Exception
U.S. ex rel. Mossey v. Pal-Tech, Inc. (D.D.C. Oct.
30, 2002) . . . . . . . . . . . . . . . . . . . . . .p. 8
U.S. ex rel. Cosens v. Yale-New Haven Hospital
(D. Conn. Nov. 14, 2002) . . . . . . . . . .p. 9
Section 3730(h) Retaliation Claims
Wilkins v. St. Louis Housing Authority (8th Cir.
Dec. 31, 2002) . . . . . . . . . . . . . . . . .p. 10
31
S POTLIGHT
Notes from the Field:
Practicalities of the Qui Tam
“Working Relationship”
Under the 1986 False Claims Act
Amendments
Frederick M. Morgan, Jr.
Jennifer M. Verkamp
Helmer, Martins & Morgan Co., L.P.A.
Cincinnati, Ohio
Rule 9(b)
U.S. ex rel. Goldstein v. Fabricare Draperies, Inc.
(D. Md. Oct. 8, 2002) . . . . . . . . . . .p. 12
U.S. v. Rogan (N.D. Ill. Oct. 29, 2002) p. 13
U.S. ex rel. Trombetta v. EMSCO Billing Services,
Inc. (N.D. Ill. Dec. 5, 2002) . . . . . . .p. 14
47 INTERVENTIONS AND SUITS
FILED/UNSEALED
51 JUDGMENTS AND SETTLEMENTS
The False Claims Act and Qui Tam Quarterly Review is published by the Taxpayers Against Fraud
Education Fund. This publication provides an overview of major False Claims Act and qui tam developments including case decisions, DOJ interventions, and settlements.
The TAF Education Fund is a nonprofit public interest organization dedicated to combating fraud
against the Federal Government through the promotion and use of the qui tam provisions of the False
Claims Act (FCA). The TAF Education Fund serves to inform and educate the general public, the
legal community, and other interested groups about the FCA and its qui tam provisions.
TAF is based in Washington, D.C., where it maintains a comprehensive FCA library for public use
and a staff of lawyers and other professionals who are available to assist anyone interested in the False
Claims Act and qui tam.
TAF Education Fund
Board of Directors
Peter Budetti, Chairman
Fred Anderson
Roger Gould
Leonard Jacoby
Gregory Lawler
John Phillips
Linda Sundro
Gregory Wetstone
Robert Wolfe
Professional Staff
James Moorman, President and CEO
Amy Wilken, Associate Director
Bret Boyce, Staff Attorney,
Quarterly Review Editor
Daniel Shores, Development Director
Carmen Ruffin, Office Administrator
Miranda Young, Administrative Assistant
Taxpayers Against Fraud Education Fund
1220 19th Street, NW Suite 501 Washington, DC 20036
Phone (202) 296-4826 Fax (202) 296-4838
Internet: http://www.taf.org
Copyright © 2003 TAF Education Fund. All Rights Reserved.
FALSE CLAIMS ACT AND QUI TAM DECISIONS
Authorities Law which permits all public general hospitals to sue or be sued. Accordingly,
the court ruled, the hospital is sui juris.
FCA Liability of Government
Entities
Wilkins v. St. Louis Housing Authority,
2002 U.S. App. LEXIS 27174 68th Cir.
Dec. 31, 2002)
Municipalities Are Not “Persons” Subject
to Suit Under the FCA
However, the court ruled that municipalities are
not “persons” subject to suit within the meaning
of § 3729(a) of the FCA. ECMC argued that it is
not subject to the FCA because of the presumption against imposition of punitive damages on
municipalities. However, the court did not
address that argument, finding instead that
municipalities were not “persons” even under the
original 1863 version of the FCA, which clearly
did not impose punitive damages. The court
noted that the term “person” has remained in the
statute unchanged since 1863. While the
Supreme Court ruled as early as 1844 that the
term “person” presumptively includes corporations, see Louisville R.R. v. Letson, 43 U.S. 497,
555-58 (1844), the Court did not specifically
indicate that this presumption extends to municipal corporations until 1868, see Cowles v. Mercer
County, 74 U.S. 118, 121-22 (1868). Therefore,
the district court concluded, while it was possible
that in 1863 Congress intended “person” to
include municipalities, it was far from clear.*
See “Section 3730(h) Retaliation Claims” below
at page 10.
U.S. v. Erie County Medical Center,
2002 U.S. Dist. LEXIS 22673 (W.D.N.Y.
Oct. 30, 2002)
A New York district court dismissed the
Government’s FCA claims against a county hospital. The court ruled that municipal entities are
not “persons” subject to suit under the FCA, even
when the Government alone initiates the suit.
In April 2002, the Government filed this action
against the Erie County Medical Center
(ECMC), alleging claims for violation of the
FCA, common-law fraud, breach of contract,
unjust enrichment, and mistake of fact. The
Government claimed that ECMC submitted
claims for reimbursement of medications not
covered by Medicare. In August the Government
filed an amended complaint, and in September
ECMC moved to dismiss, arguing that it is non
sui juris, that municipalities are not subject to the
FCA, and that some of the common-law claims
were time-barred.
*Editor’s Note—The court did not discuss the very large body of
pre-1863 case law holding municipal corporations amenable to suit
on the same terms as natural persons. See, e.g., Inhabitants of
Searsmont v. Farwell, 3 Me. 450, 452 (1825); Thayer v. City of Boston,
36 Mass. 511, 516 (1837) (Lemuel Shaw, C.J.); M’Gary v. President
& Council of the City of Lafayette, 12 Rob. 668 (La. 1846); Ross v.
City of Madison, 1 Ind. 281, 284 (1848); Town Council of Akron v.
McComb, 18 Ohio 229, 230 (1849); Mayor and Alderman of
Memphis v. Lasser, 28 Tenn. 757, 760 (1849); Commissioners of
Kensington v. County of Philadelphia, 13 Pa. 76, 77 (1850) (“A
municipal corporation is a person.”); Elliott v. Concord, 27 N.H. 204,
208-09 (1853); Paul v. School Dist. No. 2, 28 Vt. 575 (1856); City
Council of Montgomery v. Gilmer & Taylor, 33 Ala. 116 (1858); Cotes
& Patchin v. City of Davenport, 9 Iowa 227, 233 (1859); Argenti v.
City of San Francisco, 16 Cal. 255, 266 (1860); Rains v. City of
Oshkosh, 14 Wis. 372, 374 (1861) (“[W]e have no doubt that the
word ‘person’ extends to municipal corporations.”).
Hospital Is Sui Juris
The court first addressed ECMC’s contention
that it is non sui juris because it does not have
a legal existence separate from that of Erie
County. After examining the Erie County
Charter, the court rejected this contention.
The court found that the Charter incorporates
by reference provisions of the New York Public
TAF Quarterly Review
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Vol. 29 • January 2003
Furthermore, in the court’s view, other considerations supported the conclusion that in 1863
Congress did not intend “person” to include
municipalities. Congress’ principal concern in
enacting the FCA in 1863 was fraud by private
contractors. The original version of the FCA
imposed liability on a “person not in the military or naval forces of the United States.” The
court found it odd that Congress would use
such language to refer to non-natural persons
such as municipalities. The court admitted
that the same argument could be made against
the imposition of liability on private corporations, which clearly are subject to FCA liability.
However, the court distinguished private from
municipal corporations by again observing
that Letson, which dealt with a private corporation, was decided in 1844, while Cowles, which
dealt with a municipal corporation, was decided in 1868.
rations, which are “persons” under § 3729, but
explained this anomaly by once again referring
to what it perceived to be a shift in presumptions between Letson and Cowles, the significance of which other courts, in its view, had
uniformly failed to appreciate.
Because the court ruled that Congress did not
intend “person” to include municipalities even
in 1863, it did not address the defendant’s
argument that municipalities are immune
from the “punitive” damages provisions of the
1986 amendments. However, although the
1986 amendments did not alter the definition
of “person” in the Act’s liability provision, the
court nevertheless found that they further supported its conclusion that “person” does not
include municipalities. The 1986 amendments
added a new provision, § 3733, allowing the
Attorney General to issue civil investigative
demands to “any person,” and defined the word
“person” for purposes of this section to include
“any natural person, partnership, corporation,
association, or other legal entity, including any
State or political subdivision of a State.” The
court reasoned that if “person” standing alone
(as in § 3729(a)) referred to political subdivisions such as municipalities, then there would
be no need for the definition in § 3733 to refer
explicitly to political subdivisions. The court
conceded that § 3733 refers explicitly to corpo-
Because the court concluded that the defendant was not a “person” subject to the FCA, it
dismissed the FCA claims. In addition, it dismissed the Government’s common-law claims
arising outside the statute of limitations.
Furthermore, the court dismissed without
prejudice the Government’s common-law
fraud claims pursuant to Rule 9(b) on the
ground that the Government failed to identify
the non-covered items for which ECMC
allegedly submitted false claims.
TAF Quarterly Review
Finally, the court found further support for its
interpretation of the word “person” in the
Program Fraud Civil Remedies Act (PFCRA) of
1986, which defines “person” to include individuals and private associations but not states
or municipalities. The court found it implausible that “person” could have a different
meaning in the FCA than it does in the
PFCRA. The court dismissed as erroneous the
specific statement in the Senate Committee
Report on the 1986 amendments to the FCA
that the term “person” in the FCA includes
“States and political subdivisions thereof.”
Falsity of Claim
U.S. ex rel. Mathews v. HealthSouth Corp.,
No. 01-30862 (5th Cir. Oct. 22, 2002)
The Fifth Circuit, in an unpublished per curiam decision, reversed a district court’s dismissal of a qui tam action for failure to state a
claim. The court ruled that the relator did state
a claim for FCA violations in his allegations
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Vol. 29 • January 2003
rule. The court noted that Mathews had alleged
that in 1996 Sunrise CEO Kevin Conn informed
him that Sunrise was not meeting the 75% rule,
and that in fact the population of patients with
the specified diagnoses was about 65%.
Moreover, because Sunrise operated throughout
the relevant period at nearly 100% of capacity,
Mathews deduced that it was not in compliance
with the 75% rule before or after 1996.
that the defendant falsely certified compliance
with the Medicare requirements for exemption
from the prospective payment system.
Paul Mathews, a former executive of
HealthSouth Corp., filed a qui tam action
against his former employer, alleging that the
company had defrauded Medicare. In 2000 the
Government declined to intervene, and in
October 2000 the district court dismissed for
failure to satisfy Rule 9(b). In November 2000
Mathews filed a third amended complaint,
alleging that HealthSouth fraudulently certified
that 75% of the patients in its Sunrise
Rehabilitation Hospital were being treated for
certain specified serious disorders. Certification
of compliance with the 75% rule enabled the
hospital to obtain reimbursement on a prospective payment system exempt (PPS-exempt)
basis, rather than the lower PPS basis. Mathews
also alleged that the defendant failed to comply
with the Medicare guidelines requiring it to provide three hours of therapy per day to patients.
Thus, the court of appeals ruled, Mathews had
alleged more than negligence: he had alleged that
the defendant made false statements to get its
claims approved. Discovery might well turn up
further evidence substantiating his allegations.
Therefore, the district court erred in dismissing
Mathews’ claims that HealthSouth falsely certified compliance with the 75% rule. The court of
appeals reversed the dismissal of those claims.
The court of appeals also declined HealthSouth’s
invitation to affirm the dismissal on the alternative grounds that Mathews failed to plead fraud
with particularity as required by Rule 9(b).
Because the district court did not reach that issue
in its March 2001 decision, the court of appeals
declined to address the issue at this time.
HealthSouth moved to dismiss the third amended complaint for failure to state a claim and the
district court granted the motion. See 2001 WL
431690 (W.D. La. Mar. 7, 2001), 22 TAF QR 22
(Apr. 2001). The district court held that although
Mathews alleged that the defendant certified
compliance with the 75% rule in deliberate ignorance of the true state of affairs, he failed to allege
that the defendant actually violated the rule, and
therefore the court dismissed this claim. The
court also dismissed Mathews’ claim based on the
three-hour rule, finding that no such rule was
mandated by law. Mathews appealed the district
court’s dismissal of his allegations of false certification of compliance with the 75% rule.
U.S. ex rel. Aflatooni v. Kitsap
Physicians Service, 2002 U.S. App.
LEXIS 25750 (9th Cir. Dec. 16, 2002)
The Ninth Circuit affirmed the summary
judgment dismissal of a qui tam action based
on allegations of Medicare fraud. The court
ruled that dismissal was appropriate because
the relator failed to present evidence that the
defendant actually submitted a false claim.
Dr. Alfred Aflatooni brought this qui tam
action in 1996 against Kitsap Physicians
Service, Pathology Associates of Kitsap County,
Northwest Diagnostic Imaging, and a number
of individual physicians, alleging that the
defendants submitted false bills to Medicare
Relator Alleged False Statement
The Fifth Circuit reversed, ruling that the district
court erred in ruling that Mathews had not
alleged that HealthSouth had made a false statement regarding its compliance with the 75%
TAF Quarterly Review
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Vol. 29 • January 2003
from 1985 through 1987. The Government
declined to intervene. In 1997, the district
court dismissed for lack of jurisdiction pursuant to the public disclosure bar, but the
Ninth Circuit reversed as to all defendants
except Northwest, holding that only the allegations against Northwest had been publicly disclosed. See 163 F.3d 516 (9th Cir. 1999). On
remand, the parties conducted discovery, and
the remaining defendants moved for summary
judgment in 2001. The defendants argued that
Aflatooni had failed to produce evidence of a
single false claim and had failed to bring his
action within the statute of limitations.
While the district court rejected the defendants’
argument that the statute of limitations barred
Aflatooni’s claim, the court found that
Aflatooni presented no evidence that the defendants filed a single false claim, and accordingly
dismissed the case. Aflatooni appealed, arguing
that the district court erred in failing to give
him more time to gather evidence because of
the alleged spoliation, and that summary judgment was inappropriate because he had
demonstrated by implication that the defendants must have submitted false claims.
Relator Failed to Comply With Rule 56(f)
The Ninth Circuit affirmed. The court of appeals
noted that Aflatooni never made a Rule 56(f)
motion for a continuance to allow further discovery. The rule requires that any such motion
be made before the district court issues its summary judgment ruling. Therefore, the district
court did not abuse its discretion in deciding not
to grant additional discovery under Rule 56(f).
Aflatooni relied almost entirely on a letter dated
April 8, 1997 from Dr. John Matan (now
deceased) to Robert Wilson, president of Kitsap,
and on subsequent statements by the latter. The
letter stated that many of Matan’s billings had
been altered without his knowledge or consent,
but did not accuse the physician who made the
alterations of any fraud or illegal conduct. In
response to the letter, Kitsap engaged attorney
John Guadnola to conduct an internal investigation. After reviewing nearly a thousand records,
Guadnola concluded that there was no fraud.
(Aflatooni later sought to argue on appeal that
the Guadnola investigation was a sham, but had
failed to present evidence supporting this argument in the district court.)
Spoliation Argument Rejected
The Ninth Circuit also affirmed the district
court’s finding that there was no spoliation.
Defense witnesses testified that the defendants’
records were routinely destroyed after they
were kept for six years as required by state regulations. Therefore, the 1985-87 documents
were destroyed in 1991-94. Because Aflatooni
did not file suit until 1996, when the documents had already been destroyed, Aflatoooni’s
action could not have provided the notice
required to establish a valid claim of spoliation.
At the hearing on the defendants’ summary
judgment motion, Aflatooni argued that the
defendants engaged in spoliation of the allegedly false documents and requested an evidentiary hearing on that issue. However, Aflatooni
never moved for an extension under Federal
Rule of Civil Procedure 56(f). The district
court rejected Aflatooni’s request for an evidentiary hearing on his claims of spoliation, finding that the defendants had credibly asserted
that they destroyed the records in accordance
with their normal, lawful retention policy, and
that Aflatooni’s failure to seek the documents
earlier could not be blamed on the defendants.
TAF Quarterly Review
However, Aflatooni contended that the defendants were put on notice about potential litigation when they initiated the 1987 internal
investigation. The court of appeals rejected
this contention, noting that the 1987 investigation resulted in an opinion from outside counsel that there was no fraud. The court observed
that if it accepted Aflatooni’s argument, health
care providers would be subject to a de facto
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Vol. 29 • January 2003
defendant violated the Stark and AntiKickback Statutes by paying physicians fees
for referral of patients to diabetes treatment
centers. The court declined to revisit an earlier ruling that noncompliance with the Stark
and anti-kickback laws may give rise to FCA
liability under a theory of implied false certification.
The court also rejected the defendant’s invitation to revisit an earlier ruling
that the relator had satisfied Rule 9(b).
rule requiring them to keep documents in perpetuity where there was a single suggestion of
billing changes, even if an external audit
absolved the provider of any impropriety. The
court stated that such a rule would be unfair to
health care providers, who generate enormous
quantities of records.
Relator Failed to Present Evidence of a
False Claim
The Ninth Circuit ruled that it was not enough
for Aflatooni to allege without any stated reason that false claims must have been submitted. He was required either to point to a specific false claim or to present sufficient circumstantial evidence that the defendant actually
submitted a false claim. In his opposition to
the motion for summary judgment, Aflatooni
pointed only to the letter from Matan to
Wilson and several statements by the latter.
However, none of this evidence described even
one specific false claim.
Scott Pogue first brought this action, which is
now part of a multidistrict FCA litigation
against HCA and related entities, in the Middle
District of Tennesee. That court originally
granted a motion to dismiss for failure to state
a claim upon which relief can be granted, but
upon reconsideration reversed itself, permitting the suit to go forward under an implied
false certification theory, and holding that the
FCA does not require a showing of actual damages for recovery. See United States ex rel. Pogue
v. American Healthcorp, Inc., 914 F. Supp. 1507,
1508-09 (M.D. Tenn. 1996), 5 TAF QR 2 (Apr.
1996) (Pogue I).
Aflatooni sought to rely on a number of cases
allowing plaintiffs with specific evidence of false
claims to estimate total damages by extrapolation based on proof that a defendant engaged in
systematic fraud. However, the Ninth Circuit
ruled, these cases were distinguishable from
Aflatooni’s case in that Aflatooni failed to present
specific evidence of even a single false claim.
This failure was fatal to Aflatooni’s action.
Accordingly, the court of appeals affirmed the
district court’s dismissal of the case.
Subsequently the action was transferred to the
District of Columbia for coordinated pretrial
proceedings. The defendant Diabetes Treatment Centers of America (DTCA) moved for
judgment on the pleadings, asking the transferee court to revisit whether submission of a
claim carries with it an implied certification of
compliance with underlying laws and regulations and gives rise to FCA liability in the event
of noncompliance. DTCA also argued that the
relator failed to plead fraud with particularity,
another argument that had already been rejected in this case.
False Certification
U.S. ex rel. Pogue v. Diabetes Treatment
Centers of America, 2002 U.S. Dist.
LEXIS 24425 (D.D.C. Dec. 18, 2002)
Implied Certification Doctrine Was Law
of the Case
The court denied the defendant’s motion, both
because it declined to revisit the law of the case,
and because the law of the case was correct.
A District of Columbia district court denied
the defendant’s motion for judgment on the
pleadings in a qui tam suit alleging that the
TAF Quarterly Review
5
Vol. 29 • January 2003
The Tennessee district court had held that the
relator’s allegations stated a cognizable claim
under the FCA, and that the relator had pleaded fraud with adequate particularity. That
decision by a court of coordinate status was
entitled to respect from the D.C. district court,
and there were no unusual circumstances that
would justify reconsideration of that decision.
the claim and underlying transaction complying with such laws, regulations and program
instructions (including the anti-kickback and
the Stark law).” Although this form was only
adopted in 2001, before the violations alleged
in the case at bar, it was nevertheless evidence
of the materiality of such violations.
The court found the defendant’s contention
that Pogue I was followed by a wholesale
nationwide rejection of the implied false certification theory “simply wrong.” In fact, the
court found no court of appeals decisions
expressly rejecting implied certification,
although some circuits have expressed reservations. The only court to reject implied certification was a district court, which did so in
dicta on a matter not fully briefed and not
squarely before it. See United States ex rel.
Barmak v. Sutter Corp., 2002 WL 987109
(S.D.N.Y. May 14, 2002), 27 TAF QR 24 (July
2002). Because the developing case law has
generally supported the holding in Pogue I that
kickback and Stark violations can support an
FCA claim, the court reaffirmed that holding.
Stark and Anti-Kickback Violations Give
Rise to FCA Liability
Nevertheless, in the interest of thoroughness,
the court undertook a review of the cases that
the defendant claimed cast doubt on the validity of the implied certification theory. The
defendant relied chiefly on United States ex rel.
Siewick v. Jamieson Science & Engineering, Inc.,
214 F.3d 1372 (D.C. Cir. 2000), 19 TAF QR 5
(July 2000). However, the Siewick court merely held that the relator’s implied certification
claim failed because he had not proved that the
certification of compliance with the statute at
issue there (the so-called “revolving door
statute”) was a condition of the contract.
Thus, the D.C. Circuit in no way foreclosed the
validity of the implied certification theory in
Siewick. In the case at bar, in contrast to
Siewick, it had been determined that compliance with the anti-kickback and Stark statutes
was material to the Government’s decision to
pay. Moreover, since its decision in Siewick, the
D.C. Circuit again appeared to endorse the
implied certification theory in United States v.
TDC Management Corp., 288 F.3d 421, 426
(D.C. Cir. 2002), 27 TAF QR 21 (July 2002).
The court also rejected the defendant’s contention that it could not be held liable because it
did not directly submit claims to Medicare or certify compliance with health care laws. The court
observed that the FCA imposes liability on any
person who presents or “causes to be presented”
a false claim. Of course, for liability to attach, the
violation must have been made “knowingly,” but
the court ruled that it was not appropriate to
undertake the fact-intensive inquiry into the
defendant’s knowledge at this time.
The court observed that the Pogue I court
found that the Government would not have
paid the claims submitted if it had known of
the alleged kickback and Stark violations. This
finding of materiality was supported by the
Medicare Health Care Provider Application, in
which providers must certify that they “understand that payment of a claim by Medicare or
other federal health program is conditioned on
TAF Quarterly Review
Relator Satisfied Rule 9(b)
Like the Pogue I court, the D.C. district court
also rejected the defendant’s argument that the
relator failed to plead fraud with particularity.
The D.C. court ruled that the Tennessee court’s
decision on this point was both correct and
was the law of the case. The defendant sought
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Vol. 29 • January 2003
to rely on the D.C. Circuit’s recent discussion
of the application of Rule 9(b) to qui tam cases
in U.S. ex rel. Totten v. Bombardier Corp., 286
F.3d 542, 551-52 (D.C. Cir. 2002), 27 TAF QR 4
(July 2002). However, the Totten court’s main
concern was that the relator had failed to allege
the crucial element of an FCA action, namely
the submission of a false claim. In the instant
case, in contrast, the relator had adequately
alleged the submission of false claims, and had
set out a sufficiently detailed description of the
false scheme. While the relator alleged the time
and place with less specificity, detailed allegations of time may not be required where the
allegations involve a vast nationwide scheme
extending over many years.
mitted the invoices. While Alexander might
appear almost as harsh as Clausen, a closer look
reveals that the Alexander court tacitly
acknowledged that it was applying Rule 9(b)
with severe stringency in order to discourage
frivolous accusations. In the case at bar, in
contrast, there was no allegation that the relator’s suit was frivolous, and his complaint adequately notified the defendant of the claims
against it.
Clausen Criticized
In another decision in this case issued the same
day, the district court granted the relator’s
motion to compel discovery from HCA and
American Healthcorp, Inc., nonparty owners of
defendants West Paces Medical Center and
DTCA, respectively. See 2002 U.S. Dist. LEXIS
24423, summarized in “Litigation Developments” below at page 30.
Accordingly, the court denied the defendant’s
motion for judgment on the pleadings. In so
doing, the court reaffirmed the rulings of the
Tennessee district court.
The defendant also relied heavily on United
States ex rel. Clausen v. Laboratory Corporation
of America, 290 F.3d 1301 (11th Cir. 2002), 27
TAF QR 14 (July 2002). In that case, a divided
Eleventh Circuit panel affirmed the dismissal
of a qui tam action for failure to comply with
Rule 9(b), because the relator did not provide
copies of actual bills or claims, and did not
allege specific dates of claims. Judge Barkett,
dissenting, criticized the majority for requiring
proof rather than particularity, which is inappropriate on a Rule 9(b) motion to dismiss.
The D.C. district district court rejected the
defendant’s reliance on Clausen, stating that it
agreed with Judge Barkett’s dissent, and that it
believed that the D.C. Circuit, which has taken
a generous approach to pleadings, would come
to the same conclusion.
Section 3730(b)(5) First-to-File
Bar
U.S. ex rel. Trombetta v. EMSCO Billing
Services, Inc., No. 96 C 226 (N.D. Ill.
Dec. 5, 2002)
U.S. ex rel. Freeman v. National
Emergency Services, Inc., No. 99 C 151
(N.D. Ill. Dec. 5, 2002)
The court distinguished the case at bar from
another case on which the defendant relied,
United States ex rel. Alexander v. Dyncorp, Inc.,
924 F. Supp. 292 (D.D.C. 1996), 6 TAF QR 12
(July 1996), where a district court dismissed an
FCA claim for failure to identify dates on
which false invoices were submitted, invoice
numbers, and names of employees who subTAF Quarterly Review
See “Rule 9(b)” below at page 14.
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Vol. 29 • January 2003
the court lacked jurisdiction pursuant to the
public disclosure bar. Pal-Tech also moved to
strike an expert witness report filed by Mossey.
Mossey moved to dismiss Pal-Tech’s counterclaim pursuant to Fed. R. Civ. P. 12(b)(6).
Section 3730(e)(4) Public
Disclosure Bar and Original
Source Exception
U.S. ex rel. Trombetta v. EMSCO Billing
Services, Inc., No. 96 C 226 (N.D. Ill.
Dec. 5, 2002)
Allegations Not Publicly Disclosed
The court denied Pal-Tech’s motion to dismiss.
The court noted that under D.C. Circuit precedent, a qui tam suit is barred by public disclosure if information in the public domain
“could have formed the basis for a government
decision on prosecution, or could at least have
alerted law enforcement authorities to the likelihood of wrongdoing.” The only information
that could be construed as publicly disclosed
before Mossey filed suit was a performance
audit of Jorge Scientific Corporation by the
U.S. Agency for International Development
(AID). Like Pal-Tech, Jorge Scientific supplied
support services to AID’s Center for
Population, Health, and Nutrition (PHNC).
However, Mossey’s allegations involved a very
different set of false claims. The court concluded that fraud against PHNC was not so
widespread and notorious that other independent contractors working for PHNC were easily identifiable as perpetrators of fraud, and was
unwilling to indulge the unreasonable presumption that all support services contractors
commit fraud. Without Mossey’s actions, it
was extremely unlikely that the Government
would have been alerted to Pal-Tech’s alleged
fraud. Therefore, the court concluded, the
fraud allegations against Pal-Tech were not
publicly disclosed before Mossey filed suit.
U.S. ex rel. Freeman v. National
Emergency Services, Inc., No. 99 C 151
(N.D. Ill. Dec. 5, 2002)
See “Rule 9(b)” below at page 14.
U.S. ex rel. Mossey v. Pal-Tech, Inc., 2002
U.S. Dist. LEXIS 21129 (D.D.C. Oct. 30,
2002)
A District of Columbia district court denied a
defendant’s motion to dismiss a qui tam
action based on the public disclosure bar. The
court ruled that the action was not based upon
publicly disclosed allegations or transactions,
as the only arguable public disclosure related
to wrongdoing by a different company than
the defendant.
Thomas Mossey brought this qui tam action
against his former employer, Pal-Tech, Inc., in
1999, alleging that the company submitted
false claims, conspired to defraud the
Government, and unlawfully retaliated against
him for pursuing the matter. In 2000 and
2001, the court dismissed the conspiracy and
retaliation counts. Thus all that remained was
Mossey’s false claims count, as well as a counterclaim by Pal-Tech for trade secret violations
and breach of contract.
Expert Witness Report Stricken
However, the court granted Pal-Tech’s motion
to strike Mossey’s expert witness report. The
court found that the report failed to comply
with Fed. R. Civ. P. 26(a)(2)(B), because it did
not indicate the expert’s compensation, past
publications, and proposed exhibits, nor did it
provide a complete statement of the expert’s
Pal-Tech moved to dismiss the remaining count
of Mossey’s complaint, which alleged violations
of §§ 3729(a)(1) and (a)(2), on the ground that
TAF Quarterly Review
8
Vol. 29 • January 2003
opinions and the “basis and reasons therefor.”
In the court’s view, the expert report contained
nothing more than legal opinions and unsubstantiated assessments of the evidence.
In June 2002, Yale moved under Fed. R. Civ. P.
12(b)(1) and 12(h)(3) to dismiss for lack of subject matter jurisdiction pursuant to the public
disclosure bar. Prior to the transfer,Yale and eight
other defendants had filed a similar motion, but
the court in Washington had ordered it stricken
as premature. In August 2002, the Government
filed a notice of intent to intervene, but did not
immediately file its own complaint. At the end of
September 2002, Cosens and the Government
filed a joint motion with the Judicial Panel on
Multidistrict Litigation to transfer this case and
38 others pending in 27 different districts back to
the Western District of Washington for consolidated pretrial proceedings. That motion was still
pending at the time the Connecticut court issued
its ruling.
Finally, the court denied Mossey’s motion to
dismiss Pal-Tech’s counterclaim. Mossey
argued that Pal-Tech had failed to allege how
he had harmed it. The court was unpersuaded,
and found that Pal-Tech had adequately satisfied the notice pleading standard of Fed. R. Civ.
P. 8(2)(a). Assuming Pal-Tech’s assertions were
true, the court could not say that Pal-Tech was
not entitled to relief on its trade secrets and
breach of contract claims, and therefore denied
Mossey’s motion to dismiss the counterclaim.
U.S. ex rel. Cosens v. Yale-New Haven
Hospital, 2002 U.S. Dist. LEXIS 22469
(D. Conn. Nov. 14, 2002)
The factual basis for Yale’s motion to dismiss was
the testimony of Robert Maier, who was Director
of the Business Office and the Baptist Medical
Center in Oklahoma City before Cosens filed his
qui tam action. Maier stated that he received a call
in 1991 from a physician at his hospital seeking to
purchase a non-FDA-approved cardiac device for
implantation in a Medicare patient. Maier denied
the request, advising the physician that Medicare
would not reimburse the hospital. The physician
then spoke with the manufacturer’s representative, who informed him that other hospitals were
being reimbursed by Medicaid for similar devices.
The physician informed Maier, who passed the
information on to the Medicare fiscal intermediary. In 1992 Maier also discussed the matter with
Medicare auditors and investigators.
A Connecticut district court denied a motion
to dismiss based on the public disclosure bar
in a qui tam action alleging that the defendant
hospital billed Medicare for experimental cardiac devices. Although statements that an
administrator at another hospital had made to
government investigators before the qui tam
suit was filed were public disclosures, the
court ruled, the statements were not disclosures of “allegations” of fraud or fraudulent
“transactions.”
Kevin Cosens, a former medical device salesman, filed a qui tam action in 1994 in the
Western District of Washington against the
Yale-New Haven Hospital (Yale) and 131 other
clinical trial hospitals, alleging that the defendants had fraudulently billed Medicare and
other federal health programs for more than 57
different experimental devices, which were not
covered under the applicable programs. In
April 2002, the action against Yale was severed
and transferred to the District of Connecticut.
TAF Quarterly Review
Motion to Dismiss Was Not Premature
The Connecticut court denied Yale’s motion to
dismiss. Cosens and the Government argued
that the motion was premature, noting that the
Government had not yet filed its complaint and
Yale had not yet been served. (Unusually, Yale
learned of the claims against it when the qui tam
complaint was partially unsealed in connection
with another lawsuit). However, the court
9
Vol. 29 • January 2003
noted, the issue of subject matter jurisdiction
may be raised at any time, and the court found
that the record was sufficiently developed to support a decision on the jurisdictional question.
about what the hospitals stated in their bills, and
never alleged that they were committing fraud.
Moreover, Maier’s statements did not implicate
Yale. The court observed that while the public
disclosure need not specifically name the defendant for the jurisdictional bar to be raised, the
defendant must at least be identifiable from the
publicly disclosed information. Because Maier
did not make specific allegations of fraud, and
did not implicate Yale in his statements, the
court ruled that his disclosures did not reveal
“allegations or transactions” as required by
§ 3730(e)(4)(A). Accordingly, the court ruled
that the jurisdictional bar did not apply, and
denied Yale’s motion to dismiss.
The Government also argued that the motion
was premature because once it intervened, the
case would not be subject to dismissal even if the
relator were dismissed pursuant to the public
disclosure bar. Yale, on the other hand, contended that if the relator’s action were dismissed, the
court would also lack jurisdiction over the
Government’s claims, because the Government
did not initiate the suit. The court ruled that the
Government was correct that it could properly
intervene regardless of jurisdictional failures in
the underlying suit. Nevertheless, the court
ruled, this fact did not make consideration of the
question of subject matter jurisdiction over the
relator’s claims premature.
Because the court found that Maier’s statements
did not disclose “allegations or transactions,” it
did not reach the remaining issues of whether
Cosens’ action was “based upon” the disclosures,
and if so, whether Cosens was an original
source. However, in a footnote the court
expressed “substantial doubt” that Cosens’
action could be said to be “based upon” Maier’s
disclosures. The court observed that Maier’s
generic statements failed to identify any fraudulent practice by any specific hospital, or even to
identify any hospital by name, and related to
only one device, whereas Cosens’ action encompassed 57 different cardiac devices.
Statements to Medicare Investigators
Were “Public Disclosure”
The court observed that in order for the jurisdictional bar to apply, there must be a “public disclosure” of “allegations or transactions” upon which
the relator’s claims are based, and of which the
relator is not the original source. The court ruled
that Maier’s statements to Medicare investigators
were a public disclosure. Courts have held that
disclosure of information to a competent public
official whose duties extend to the claim in question is a public disclosure within the meaning of
§ 3730(e)(4)(A).
Section 3730(h) Retaliation Claims
Wilkins v. St. Louis Housing Authority,
2002 U.S. App. LEXIS 27174 (8th Cir.
Dec. 31, 2002)
Information Disclosed Did Not
Constitute “Allegations or Transactions”
Nevertheless, the court ruled, the information
that Maier disclosed did not constitute “allegations or transactions” within the meaning of
§ 3730(e)(4)(A). Although Maier told investigators that other hospitals were billing Medicare
for experimental devices and getting paid, he
insisted that he never made any statements
TAF Quarterly Review
The Eighth Circuit held that local governments may be sued as employers under the
provisions of § 3730(h). The court followed
the Ninth Circuit to rule that an employee
engages in protected activity when (1) the
employee in good faith believes, and (2) a reasonable person in the same or similar circum10
Vol. 29 • January 2003
stances might believe, that the employer is
committing fraud against the Government.
fired him at the end of 1999. Wilkins sued
SLHA under § 3730(h) of the FCA. In the
meantime, he found a security job with the
Department of Defense that lasted nine
months. His case was tried to a jury, which
found that SLHA fired Wilkins as a direct
result of his statements to SLHA and HUD,
and that Wilkins suffered $79,170 in lost
wages. After subtracting the $30,000 in mitigating income that Wilkins earned from his job
with the Defense Department, the court
awarded double back-pay damages in the
amount of $98,340. The court denied SLHA’s
motions for judgment as a matter of law.
Randolph Wilkins joined the St. Louis Housing
Authority (SLHA) in 1996 as a Quality Control
Evaluator for Public Safety. SLHA, a municipal
corporation created by the City of St. Louis to
administer its public housing developments,
receives funding from HUD pursuant to an
annual contributions contract. Under HUD’s
Public Housing Management Assessment
Program (PHMAP), SLHA is required to submit annual performance certifications and
suggested scores in eight categories or “indicators.” After reviewing these certifications and
suggestions as well as its own data, HUD
assigns final scores. Agencies with scores of
90% or above are designated “high performers”; those with scores between 60% and 89%
are designated “standard”; and those with
scores below 60% are designated “troubled.”
SLHA appealed from the jury’s verdict and the
denial of its motions for judgment as a matter
of law, arguing that there was insufficient evidence that Wilkins’ conduct was protected
activity under the anti-retaliation provisions of
the FCA. Wilkins cross-appealed, arguing that
in calculating damages the district court
should have doubled his back pay before subtracting his interim earnings.
In fiscal year 1997, SLHA received a score of
18.5% and was accordingly designated as
“troubled.” Wilkins was promoted to Manager
of Security Operations and was given responsibility for reporting SLHA’s performance in all
components of the PHMAP indicator for security. Wilkins repeatedly reported SLHA’s noncompliance with HUD security regulations,
and as time for the 1998 reporting drew near,
he was reassigned to a satellite office and then
suspended for two weeks without pay. In the
meantime, SLHA compiled and submitted
PHMAP data for 1998, certifying a suggested
overall score of 37.1%, an improvement of
nearly twenty points. (Failure to improve by at
least ten points would have put the SLHA into
“substantial default,” subjecting it to a potential HUD takeover.)
Retaliation Provisions Apply to
Municipalities
The Eighth Circuit affirmed the district court in
all respects. The court observed that a split has
developed among the courts of appeals as to
whether local governments are “persons” subject
to qui tam liability under § 3729 of the FCA.
However, none of these recent appellate decisions has addressed whether local governments
may be held liable as “employers” under the antiretaliation provisions of § 3730(h). One federal
district court has addressed this issue, and the
Eighth Circuit found its reasoning on the issue of
§ 3730(h) claims against municipalities persuasive. See United States ex rel. Satalich v. Los
Angeles, 160 F. Supp. 2d 1092 (C.D. Cal. 2001), 24
TAF QR 1 (Oct. 2001). The Eighth Circuit did
not express an opinion on the Satalich court’s
holding that municipalities are not “persons”
subject to qui tam liability under § 3729 because
Wilkins returned to work in December 1998
and resumed his efforts to report what he
believed to be fraudulent PHMAP reporting
practices. After Wilkins intensified his efforts
to report SLHA’s failing performance, SLHA
TAF Quarterly Review
11
Vol. 29 • January 2003
of the “punitive” nature of FCA treble damages.
But the Eighth Circuit agreed with the Satalich
court that retaliation claims under § 3730(h) do
not depend on the plaintiff’s ability to succeed
on, or even file, a claim under § 3729, and that
the double back-pay damages in the anti-retaliation provision are compensatory rather than
punitive. Therefore, the Eighth Circuit concluded, like the Satalich court, that a municipality
may be an “employer” subject to liability under
§ 3730(h).
ruled that the district court did not abuse its
discretion when it did not specifically submit
the issue of protected activity to the jury. The
district court acted properly in submitting the
factual component of the issue to the jury via
special verdict form, and reserving to itself the
legal determination whether the conduct that
the jury found Wilkins to have engaged in
amounted to protected activity.
Back Pay Damages Doubled After
Subtracting Interim Earnings
FCA Protects Employees With
Reasonable Good Faith Belief That
Employer Was Committing Fraud
Finally, the Eighth Circuit addressed Wilkins’
cross-appeal. The court found that the district
court properly doubled Wilkins’ back-pay
damages after subtracting his interim earnings.
While the FCA is silent on the issue of mitigation, the court expressed confidence that this
approach met the statute’s goal of making the
whistleblower whole. Moreover, the Eighth
Circuit had previously observed, in a non-FCA
context, that doubling back-pay damages
before subtracting mitigating income would
result in a windfall to a plaintiff who had suffered no actual damages. The court ruled that
this policy applied with equal force to the FCA
context. Although Wilkins had in fact suffered
actual damages, the court found that the district court’s award of nearly $100,000 completely compensated him for the $80,000, offset
by $30,000 in mitigating income, that he lost as
a result of his retaliatory termination.
SLHA argued that Wilkins did not act in furtherance of an FCA action because falsely
reported PHMAP scores do not constitute a
“claim” under the FCA. However, the court
rejected this argument, holding that it missed
the distinction between the standards for a successful qui tam suit and those for a claim for
retaliation. The court adopted the Ninth
Circuit’s approach to retaliation claims, under
which “an employee engages in protected activity where (1) the employee in good faith
believes, and (2) a reasonable employee in the
same or similar circumstances might believe,
that the employer is possibly committing fraud
against the government.” Moore v. California
Institute of Technology Jet Propulsion
Laboratory, 275 F.3d 838, 845 (9th Cir. 2002),
26 TAF QR 19 (Apr. 2002).
Rule 9(b)
The court was persuaded that Wilkins had
both a good-faith and an objectively reasonable belief that SLHA was committing fraud
against the Government. The court found that
Wilkins reasonably believed that SLHA was in
effect fraudulently concealing its provision of
defective goods (i.e., unsafe public housing) for
which the Government had paid full price.
Accordingly, the court of appeals affirmed the
district court’s denial of SLHA’s motions for
judgment as a matter of law. The court also
TAF Quarterly Review
U.S. ex rel. Goldstein v. Fabricare
Draperies, Inc., 2002 U.S. Dist. LEXIS
19655 (D. Md. Oct. 8, 2002)
U.S. ex rel. Goldstein v. Leonard’s
Draperies, Inc., 2002 U.S. Dist. LEXIS
19707 (D. Md. Oct. 8, 2002)
12
Vol. 29 • January 2003
U.S. ex rel. Goldstein v. Mill End Shops,
Inc., 2002 U.S. Dist. LEXIS 19708 (D.
Md. Oct. 8, 2002)
conclusory fashion that the defendants’ representations to the Government were false and
fraudulent. Goldstein claimed that his experience in the industry was the basis of his knowledge of the alleged fraud. However, the court
observed, this generic claim did not provide a
specific basis for Goldstein’s fraud allegations.
U.S. ex rel. Goldstein v. Skyline Mills,
2002 U.S. Dist. LEXIS 19709 (D. Md.
Oct. 8, 2002)
The court noted that in his opposition,
Goldstein “cavalierly” stated that each defendant needed only open its file drawer and
examine the specified proposals and contracts
in order to prepare an answer. However, the
court observed, ensuring adequate notice to
the defendants of the scope of the allegations is
only one of the purposes of Rule 9(b). The
Rule also serves to protect defendants from
frivolous suits, fishing expeditions, and harm
to their goodwill and reputation. The Rule
does not permit a plaintiff to use his general
knowledge of the type of bid and contact documents used in the industry as a means to root
though defendants’ files in search of evidence
of fraudulent conduct. Therefore, the court
dismissed Goldstein’s complaints, and granted
him 21 days in which to file amended complaints in these actions.
A Maryland district court dismissed four qui
tam actions alleging that various defendants
violated the FCA in connection with the sale of
curtains and related items to the Government.
The court ruled that the relator’s allegations
were conclusory and failed to plead fraud with
particularity as required by Rule 9(b).
Jeffrey Goldstein, the former president and
owner of Commercial Drapery Contractors,
Inc., was convicted of defrauding the
Government in connection with the sale of
draperies, curtains, blinds, bedspreads, and
related items to the Government. He then
brought a number of qui tam actions against
other companies in the same industry, alleging
that they engaged in the same type of misconduct for which he was convicted. The defendants moved to dismiss on the grounds that
the complaints failed to plead fraud with particularity as required by Fed. R. Civ. P. 9(b).
U.S. v. Rogan, 2002 U.S. Dist. LEXIS
21021 (N.D. Ill. Oct. 29, 2002)
Conclusory Allegations Did Not Satisfy
Rule 9(b)
An Illinois district court denied motions pursuant to Rule 9(b) to dismiss an FCA action
alleging that the defendants provided kickbacks for patient referrals and billed for
unnecessary services. The complaint adequately alleged the details of the submission of
false claims, and it was reasonable to presume
that false statements in cost reports were the
collective actions of the officers of the defendant companies, who could be held liable
under the FCA for frauds committed by their
agents acting with apparent authority.
In four separate but essentially identical opinions, the court granted the defendants’
motions and dismissed the actions. Goldstein
contended that he satisfied Rule 9(b) because
he specified the numbers and dates of the government solicitations and resulting contracts,
as well as the specific documents containing
the alleged misrepresentations and their contents. However, the court ruled that the specificity of Goldstein’s allegations was illusory.
After reciting generic terms of the bid and contract documents, Goldstein simply alleged in
TAF Quarterly Review
In 2002, the Government filed an eight-count
13
Vol. 29 • January 2003
Principal Liable for Acts of Agents
complaint stating FCA and common-law
claims against Peter Rogan, Braddock
Management, Inc. (Braddock), Bainbridge
Management, Inc. (Bainbridge Inc.), and
Bainbridge Management, L.P. (Bainbridge L.P.).
From 1995 to 1998, Rogan was the president of
Waldo Point Management, the general partner
of Braddock, which operated Edgewater
Hospital and Medical Center in Chicago. Since
1998, Rogan has been president, secretary, and
director of Bainbridge Inc., as well as the trustee
of its sole shareholder. Bainbridge Inc. was the
general partner of Braddock and Bainbridge
L.P. In March 2002, Bainbridge L.P. bought out
Braddock’s contract with Edgewater.
The court denied the defendants’ motions. The
court noted that the complaint alleged that
Ehmen, an employee of Bainbridge L.P. and
Braddock, submitted false cost reports that
misprepresented compliance with the Stark
statute, the medical necessity of the services
provided, and other material matters. Thus, the
Government had adequately alleged the “who,
what, when, where and how” of the fraud.
As to the defendants’ contention that the complaint did not adequately inform them of their
role in the fraud, the court noted that in the
case of corporate fraud where the fraud is conveyed in “group-published information” such
as cost reports, it is reasonable to presume that
the false statements are the collective actions of
the corporate officers. The court also observed
that in fraud cases, a principal is liable for fraud
upon a third person committed by an agent acting with apparent authority. The complaint
adequately supported the inference that Ehmen
was an agent of Braddock, Bainbridge L.P. and
Bainbridge Inc. who acted with authority in
submitting the allegedly false cost reports.
Thus the allegations in the complaint adequately informed the defendants of their role in the
alleged fraud. Accordingly, the court denied the
defendants’ motions to dismiss.
The complaint alleged that from 1995 until at
least December 2000, the defendants provided
kickbacks (disguised as legitimate payments)
to physicians for patient referrals, hospitalized
patients who did not require hospitalization,
performed and billed for a variety of unnecessary procedures, including angioplasties and
heart catheterizations, and offered cash and
other inducements to patients to generate
admissions. By falsely certifying compliance
with the Stark statute’s prohibition on selfreferral, falsely representing that the services
provided were medically necessary, and creating other false records, the Government
alleged, the hospital obtained over $13 million
from Medicare and over $4 million from
Medicaid. Roger Ehmen, an employee of
Bainbridge L.P. and Braddock who served as
Edgewater’s senior vice president, submitted
the allegedly false cost reports.
U.S. ex rel. Trombetta v. EMSCO Billing
Services, Inc., No. 96 C 226 (N.D. Ill.
Dec. 5, 2002)
The defendants moved to dismiss, arguing that
the complaint failed to plead fraud with particularity as required by Fed. R. Civ. P. 9(b). The
defendants argued that the complaint failed to
identify the specific person who made the alleged
misrepresentations, their content, and how they
were communicated to the Government. Rogan
also argued that the complaint did not inform
him of his role in the fraud.
TAF Quarterly Review
U.S. ex rel. Freeman v. National
Emergency Services, Inc., No. 99 C 151
(N.D. Ill. Dec. 5, 2002)
An Illinois district court denied motions to
dismiss FCA claims in two related qui tam
actions. The court ruled that the first-to-file
rule did not bar claims against a new defen14
Vol. 29 • January 2003
dant in the second action, and that the complaint in that second action did not preclude
jurisdiction over new claims subsequently
asserted in an amended complaint in the first
action, because those new claims were not
based upon allegations in the second action.
The court also ruled that the amended complaint in the first action satisfied Rule 9(b),
declining to require greater particularity
where the details of the alleged false bills lay in
the exclusive control of the defendants.
lapped, the Freeemans were the first to connect
NES to the scheme, introducing new allegations
that appeared to have substantially increased
the potential total recovery. The alleged
involvement of NES, the court ruled, was not a
matter of mere detail, but a new material fact.
Because the Freemans provided exactly the
kind of information that the qui tam provisions
were designed to encourage relators to disclose,
the court rejected NES’ attempt to invoke the
first-to-file rule against them.
In January 1996, Linda Berline (now
Trombetta) filed a qui tam action against eighteen corporate and three individual defendants, alleging that they violated the FCA by
upcoding Medicare and Medicaid claims for
emergency room physician services. Three
years later, Linda and James Freeman filed a qui
tam action against several of the same defendants and a new defendant, National
Emergency Services, Inc. (NES), which
involved essentially the same alleged scheme
but was limited to overbilling for emergency
room visits by Medicaid patients. In December
2001, the Government intervened in part in the
Trombetta case, and shortly thereafter,
Trombetta filed an amended complaint adding
as defendants NES and National Healthcare
Services, Inc. In 2002 the Govermment filed its
own complaint. A group of defendants moved
to dismiss the claims against them based on the
first-to-file bar, the public disclosure bar, and
Fed. R. Civ. P. 9(b).
First Relator’s Claim Was Not Based
Upon Public Disclosures
The court also rejected NES’ argument that
Trombetta’s non-intervened claims should be
dismissed under the public disclosure bar on
the grounds that they were based upon the
Freemans’ complaint. Trombetta pointed out
that her non-intervened claims dealt with
emergency room visits billed to Medicare and
procedures billed to both Medicare and
Medicaid, while the Freemans’ complaint dealt
only with visits billed to Medicaid.
Nevertheless, the Freemans were the first to
allege that NES was involved in the billing
scheme, and Trombetta later asserted new
claims against NES in her amended complaint.
Nevertheless, the court ruled, even assuming
that the Freemans’ complaint was a public disclosure of NES’ role in the alleged fraud, there
was no indication that Trombetta actually
derived any information from the Freemans’
complaint. The unrebutted affidavit of
Trombetta’s attorney indicated that she learned
of NES’ role from her participation in the
investigation and from a stock purchase agreement. Because the Seventh Circuit has adopted the minority view that “based upon” for
purposes of the public disclosure bar means
actually derived from, the district court ruled
that Trombetta’s claims were not based upon
public disclosures.
First-to-File Rule Did Not Bar Second
Relator’s Claim Against New Defendant
The court denied the defendants’ motions in
their entirety. The court rejected NES’ argument that the first-to-file rule of § 3730(b)(5)
barred the Freemans’ claims against it. The
court observed that Trombetta’s original complaint included no allegations concerning NES.
Although the Medicaid overbilling schemes
described in the two complaints largely overTAF Quarterly Review
15
Vol. 29 • January 2003
sonably be expected to recall the exact dates of
particular bills.
Complaint Satisfied Rule 9(b)
The court ruled that Trombetta had stated her
FCA claim with sufficient particularity to satisfy Rule 9(b). It rejected the defendants’ contention that Trombetta had failed to delineate
each defendant’s role in the alleged fraud. The
court noted that Trombetta had averred that
each and every defendant engaged in each and
every alleged fraudulent practice. To the extent
that any residual ambiguity remained, the
court ruled, the moving defendants, which
consisted of closely related corporations and
their sole owner and CEO, could most likely
sort out their involvement without significant
difficulty.
Arbitrability of FCA Claims
U.S. ex rel. Schultz v. Cancer Treatment
Centers of America, 2002 U.S. Dist.
LEXIS 21681 (N.D. Ill. Nov. 4, 2002)
An Illinois district court denied the defendants’ motion to dismiss or stay a qui tam
action pending arbitration. The court ruled
that a binding arbitration agreement in the
relator’s employment contract with one of the
defendants did not apply to the qui tam claim,
because the Government was not a party to
the arbitration agreement but was the real
party in interest in the qui tam claim.
The court also ruled that Trombetta had specified the content of the alleged misrepresentations with ample particularity. This was not a
case of one or two isolated misrepresentations
that could be fully described in a short and
plain pleading. Rather, Trombetta alleged that
the defendants’ billing practices were intentionally and systematically flawed, resulting in
hundreds of thousands of false claims. The
defendants complained that Trombetta had
failed to identify a single fraudulent bill that
was submitted to the Government. However,
Trombetta argued, and the court agreed, that
the critical documents lay exclusively in the
defendants’ control. Although the bills themselves might be in the hands of the
Government, specific instances of fraud could
be identified only by comparing the bills with
patients’ medical charts, which remained in the
defendants’ exclusive control.
In December 1999, Jaqueline Grandeau (formerly Jacqueline Schultz) filed a qui tam action
against Cancer Treatment Centers of America
(CTCA), which operates cancer centers
throughout the United States, and the Midwest
Regional Medical Center (MRMC) in Zion,
Illinois, where she worked from 1997 until she
was dismissed in May 2000. Grandeau was
hired as a quality assurance coordinator by
Professional Corporation of Illinois (PCI), a
third defendant in her qui tam action, and was
later promoted to the position of business
manager for PCI and MRMC. In July 2002,
Grandeau filed a second amended complaint.
She alleges that the defendants collaborated to
bill the United States and the State of Illinois
for services that were not provided or not
reimbursable, that she was terminated in violation of federal and state laws protecting
whistleblowers from retaliation, as well as the
Family and Medical Leave Act. The defendants
moved to dismiss or stay the action pending
arbitration.
Trombetta also adequately specified the dates
of the misrepresentations as occurring between
June 1989 and June 1998. With a fraudulent
scheme of this magnitude, the court ruled,
more particularity as to the dates of specific
misrepresentations could not reasonably be
required. Moreover, since Trombetta left the
defendants’ employ in 1995, she could not reaTAF Quarterly Review
16
Vol. 29 • January 2003
Arbitration Clause Inapplicable to FCA
Claims
claims in Grandeau’s complaint. The defendants had argued that those claims should be
dismissed pursuant to Fed. R. Civ. P. 12(b)(6).
Grandeau did not address the defendants’
arguments on this point, and the court found
them persuasive.
The court denied the motion with respect to
Grandeau’s FCA claims, but did dismiss two
state law claims in her complaint. The court
observed that Grandeau’s employment contract provided for arbitration of “any dispute
aris[ing] between the parties hereto.”
Although there is a strong federal policy in
favor of arbitration, arbitrability of a particular
issue is a matter of contract interpretation, and
a party cannot be required to submit to arbitration any dispute that it has not agreed to
submit. The court ruled that it was clear that
the parties did not agree to arbitrate a qui tam
action arising from the employment relationship. The contract provided only for resolution of disputes between the parties to it,
namely Grandeau and CTCA. However, the
dispute underlying Grandeau’s qui tam claim
was between the defendants and the governments of the United States and Illinois, not
between the defendants and Grandeau.
First Amendment/Media Access
U.S. ex rel. Franklin v. Parke-Davis, No.
96-CV-11651 (D. Mass. Oct. 10, 2002)
A Massachusetts district court modified a protective order in a qui tam case so as to permit
the relator to distribute nonconfidential materials to the press. The court ruled that a blanket protective order covering all materials
obtained in discovery was overinclusive, violating the First Amendment.
David Franklin, a former medical liaison with
the Parke-Davis division of Warner-Lambert
Company, brought this qui tam action in 1996,
alleging that Parke-Davis engaged in a scheme
involving the promotion the drug Neurontin
for off-label uses, resulting in the submission
of false claims to the Government. In 1999 the
Government declined to intervene. ParkeDavis moved to dismiss, and in 2001 the court
dismissed certain claims, but not Franklin’s
claims of Medicaid fraud involving Neurontin.
See 23 TAF QR 16 (July 2001).
Grandeau’s wrongful termination claims, in
the court’s view, were a closer call. The court
rejected Grandeau’s arguments that the arbitration agreement was too vague to be enforceable, that it applied only to CTCA, that the
costs of arbitration would be prohibitive, and
that the arbitration agreement violated public
policy. Nevertheless, the court was not convinced that the arbitration clause, liberally
construed, covered the wrongful termination
claims. The court found that the intent of the
parties when signing the agreement was to protect confidential information acquired by
Grandeau during her employment, not to
establish blanket terms to define her employment. The court concluded that Grandeau’s
wrongful termination claims did not arise
under her employment agreement, and were
thus not subject to its arbitration clause.
In January 2002, the court entered a protective
order providing that materials obtained in discovery were to be used for the purposes of litigating the qui tam action, “and for no other
purpose whatsoever.” The protective order also
provided for additional protections for material designated as “confidential” by the parties.
Two news media companies, the New York
Times Company (publisher of the New York
Times and the Boston Globe) and the National
Broadcasting Company, sought to intervene to
However, the court dismissed two state law
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Vol. 29 • January 2003
modify this protective order, contending that it
was overbroad and violated the First
Amendment. The relator supported the position of the media companies, while Parke-Davis
opposed it, arguing that release of the documents would jeopardize its right to a fair trial.
overasserted confidentiality in producing documents, and had hardly expedited the discovery process.
The court observed that blanket protective
orders are not favored. Although such orders
may be useful in expediting pretrial discovery,
they are by their nature overinclusive and
therefore peculiarly subject to later modification. Because the January order was overinclusive in violation of the First Amendment, and
there was no good cause under Rule 26(c) for
application of the order to nonconfidential
materials, the court modified the order to limit
its application to confidential materials only.
Protective Order Modified to Permit
Dissemination of Nonconfidential
Material
The court granted the media companies’
motion to intervene as well as their motion to
modify the protective order. The defendants
argued that the protective order forbade the
dissemination of any discovery material, while
the relator and the media intervenors argued
that it forbade only dissemination of confidential material. The court concluded that the
defendants’ interpretation was correct, and
that the January protective order barred nonlitigatory use of all materials provided during
discovery.
In re Search of 1372 Boggs Drive, 2002
U.S. Dist. LEXIS 20101 (M.D.N.C. Oct.
15, 2002)
A North Carolina district court denied a
motion to seal a search warrant, search warrant application, affidavit, return, and inventory in the case where the movant was a possible defendant in a qui tam action. The court
ruled that the public’s common law right of
access to the materials overrode the privacy
and reputation rights of the defendant and its
employees.
Upon review, the court determined that such a
broadly sweeping order was not consistent
with Fed. R. Civ. P. 26(c) and the First
Amendment. Rule 26’s requirement of “good
cause” for protective orders framed the court’s
analysis of First Amendment concerns. The
defendants argued that they had shown good
cause in two ways. First, they argued that
release of the information would jeopardize
their Seventh Amendment right to a fair trial.
However, the court found no evidence of pervasive media coverage that would taint a jury
pool. Second, the defendants argued that a
broad protective order served to expedite the
litigation by eliminating the need for document-by-document review for confidentiality.
They argued that any modification to the order
would unfairly prejudice them because they
relied on its protections in managing discovery.
The court found these arguments unpersuasive, noting that the defendants had litigated
over the protective order extensively, had
TAF Quarterly Review
In September 2002, the agents of the
Department of Defense conducted a search
pursuant to a warrant of premises owned by
the L.S. Starrett Company in Mount Airy,
North Carolina. The agents seized 139 items,
and on October 3, 2002 made a return of the
warrant with an inventory.
On October 1, 2002, prior to the filing of the
return, the Government moved for an order
partially sealing the search warrant affidavit.
On the same date, Starrett filed an emergency
motion requesting that the search warrant,
application, affidavit, and inventory return be
maintained under seal. The court issued an
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order outlining its search warrant procedures
issued in compliance with Baltimore Sun
Company v. Goetz, 886 F.2d 60 (4th Cir. 1989).
The court observed that the Government’s
motion complied with these procedures, but
Starrett’s did not, because it requested that its
entire motion be filed under seal. The court
struck Starrett’s motion and brief, but allowed
Starrett to make a new request.
Wall Street Journal article was released, Starrett
worried that additional information about the
investigation could further harm the share
price and endanger its business and the jobs of
its employees.
On October 9 the court held a hearing, where
it inspected the Government’s request in camera and took additional oral evidence under
seal. Relying on Baltimore Sun, the court
approved the NYTC’s right to intervene. The
court also ruled that Starrett, whose property
was the subject of the search warrant, had
standing to intervene.
The New York Times Company (NYTC) also
moved to intervene. The NYTC publishes the
Telegram & Gazette, a Worcester, Massachusetts
newspaper that serves the town of Athol, where
Starrett is headquartered. The Telegram &
Gazette, as well as the Wall Street Journal, had
reported that Starrett was a defendant in a qui
tam action, still under seal in federal court in
Massachusetts, brought by Richard Parks, a former Starrett Technician. See 28 TAF QR 53
(Oct. 2002). The articles alleged that Starrett
was under investigation to determine whether
it sold substandard equipment to the
Government.
Common Law Right of Access Overrode
Privacy and Reputation Rights of
Defendants
In its October 15 decision the court noted that
under Baltimore Sun, search warrants are governed by the common-law qualified right of
access rather than the First Amendment right of
access. The judicial officer issuing a warrant may
seal papers when it is both essential and narrowly tailored to the preservation of “higher values.”
The NYTC argued that the public, including
Starrett’s employees and retirees, as well as the
Athol community, had a right to timely and
accurate information about the company. It
also asserted that the news was important to the
national investment community. The NYTC
did not object to the Government’s motion to
partially seal the affidavit, to the extent that that
motion rested on the need to protect confidential sources and an ongoing investigation.
However, the NYTC objected to the sealing of
any other part of the warrant papers.
Starrett raised the possibility that there might
be a pending qui tam action against it under
seal, and argued that if there were one, the court
should consider this factor in exercising its discretion. Neither the Government nor the court
would confirm or deny that there was such an
action, but the court ruled that assuming hypothetically that there was a qui tam action, the
court would order redaction of specific information coming solely from that action.
Starrett filed a motion to intervene and an
amended motion to seal, seeking to seal all the
same papers as in its previous request. It contended that sealing was necessary to protect the
privacy and reputations of the company and
any employee mentioned in the search warrant
papers. Noting that its stock price lost 27% or
$31.8 million in shareholder value after the
Starrett also requested that the court redact any
mention of its employees from the search warrant papers, and seal the entire search warrant,
application, and return. Starrett argued that
neither it nor its employees could defend
themselves against the allegations since charges
had not yet been brought, and therefore sealing
was necessary to protect privacy interests and
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Vol. 29 • January 2003
reputation, and to prevent economic harm to
itself and its employees.
The court ruled that cognizable reputation and
privacy interests of potential targets named in
search warrants must be tied to potential misuse of the documents, and declined Starrett’s
invitation to recognize a broader independent
reputation or privacy right. The court worried
that recognition of an independent privacy
right would lead to the routine sealing of
search warrants, overwhelm the courts, and
ultimately swallow the common-law right of
access to search warrant papers.
However, the Fourth Circuit has repeatedly
stressed the importance of the common-law
right of access. The right enables the citizens to
keep a watchful eye on the activities of the
Government and obtain information about its
operations. Government searches conducted
by armed agents can cause public anxiety,
which is best abated by the release of information showing that the actions are authorized
and justified.
After reviewing the search warrant, the court
found that all statements were sufficiently relevant to the probable cause finding and were
not based on inflammatory or unsubstantiated
evidence. Therefore, the court saw no cause to
redact the information further. Because the
public interest in access to the search warrant
overrode the privacy and reputation rights of
Starrett and its employees, the court denied
Starrett’s motion to seal the warrant papers.
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LITIGATION DEVELOPMENTS
of the services that GRSC and GRC provided,
as required by law.
U.S. ex rel. McCauley v. Best Care Home
Health, Inc., 2002 U.S. Dist. LEXIS 19506 (D.
Minn. Oct. 7, 2002)
The court concluded that it was appropriate to
exclude the Khatoon declaration from consideration of the defendants’ motion for partial
dismissal, because Rule 12(b)(6) does not
allow consideration of matters outside the
pleadings when the court is assessing the legal
sufficiency of a complaint. However, the court
ruled that it was appropriate to consider the
declaration in connection with the defendants’
opposition to the Government’s motion to
amend, and therefore denied the Government’s
motion to strike.
In October 2002, a Minnesota district court
granted the Government’s motion to amend its
complaints in a qui tam action based on allegations that the defendants submitted false
claims for home health care services to
Medicaid and Medicare. In 1998 and 1999
Shelley Rae McCauley and Nancy Bernard filed
separate but related qui tam actions against
Best Care Home Health, Inc., Nazneen
Khatoon, a shareholder and agent of Best Care,
Grand Rapids Senior Care (GRSC), Great River
Care (GRC), and a number of other individuals and entities. The Government intervened
in 2001 and the two actions were consolidated.
Best Care and Khatoon moved to dismiss allegations in the complaints that GRSC and GRC
were uncertified subunits of Best Care. The
Government moved to amend its complaints.
Best Care and Khatoon opposed this motion,
and filed a declaration from Khatoon in support of their opposition. The Government
moved to strike the Khatoon declaration.
The court noted that under Rule 15(a), leave to
amend “shall be freely given when justice so
requires.” The court rejected the defendants’
argument that amendment would be futile,
because the Medicare regulations expressly provide that when services are provided “under
arrangement” with a home health agency, the
agency must provide at least one of the qualifying services directly through agency employees,
and services not provided directly must be monitored and controlled by the parent agency. Since
the proposed amended complaints alleged that
Best Care’s arrangement with GRSC and GRC
failed to comply with these requirements, which
are a condition of payment, the proposed
amendments would not be futile. The court also
rejected the defendant’s argument that the
Government deserved no further chances to
amend, because it had already settled lengthy
administrative
proceedings
concerning
Medicare payments to Best Care. Those proceedings, the court found, made no reference to
Best Care’s provision of home health services
under arrangement with GRSC or GRC.
The court granted the Government’s motion to
amend, rendering moot the defendants’
motion to dismiss, but denied the
Government’s motion to strike. The court
observed that the proposed amended complaint represented a shift in the Government’s
theory of liability. While the original complaints alleged that claims submitted under
Best Care’s provider number for home health
services provided by GRSC and GSC were false
because GRSC and GSC were not properly certified branch offices or subunits of Best Care,
the proposed amended complaints asserted
that the claims were false because Best Care did
not provide any of the qualifying services
directly, nor did it supervise the administration
TAF Quarterly Review
Accordingly, the court granted the Government’s
motion to amend. The defendants’ motions for
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LITIGATION DEVELOPMENTS
Cobin, an employee of the Department of
Defense. Meanwhile, a government criminal
investigation of Dolenz was underway. In
December 1996, the Government elected to
intervene in Boundy’s action, but moved to stay
and administratively close the case under seal
pending the outcome of the criminal matter.
partial dismissal were thus rendered moot and
the court denied those motions.
Boundy v. Dolenz, 2002 U.S. Dist. LEXIS
20445 (N.D. Tex. Oct. 21, 2002)
In October 2002, a Texas district court granted
a qui tam relator’s motion for summary judgment on the defendant’s counterclaim, but
denied the relator’s motion for summary judgment on his own FCA claim. The defendant,
Bernard Dolenz, a physician and attorney,
treated Mildred Avery for injuries resulting
from a slip and fall, and also for a workers’
compensation injury. While under his care,
Avery assigned to Dolenz any potential bad
faith claims against Avery’s insurance carrier in
the event that the carrier denied reasonable
medical care.
In 1998 Dolenz was found guilty of mail fraud,
sentenced to 90 months in prison, and ordered
to repay $1.68 million in restitution to 45 victims including the Department of Labor,
which is the federal insurance carrier for worker compensation claims made by federal workers. In 1999 the Government withdrew its
intervention, and the court unsealed the qui
tam complaint.
At the end of 2000, Dolenz filed counterclaims
against Boundy and others, seeking recovery
for frivolous litigation, abuse of process, and
tortious interference. Boundy moved to dismiss the counterclaims, or in the alternative,
for summary judgment on them. In May 2002,
the court granted summary judgment to
Boundy on the frivolous litigation and abuse of
process counterclaims. However, the court
denied Boundy’s motion under Rule 12(b)(6)
to dismiss the tortious interference counterclaim, because Boundy failed to show that
there was no set of facts that would entitle
Dolenz to relief on that claim.
In 1992 Avery retained John Boundy to represent her in the slip and fall case. Boundy discovered that after one office visit by Avery,
Dolenz submitted identical claims to three different parties, and that Dolenz repeatedly
billed Avery’s carriers for psychotherapy that
was never performed.
In 1993 Avery was subpoenaed to appear in a
deposition in a state court lawsuit that Dolenz
had filed against Avery’s insurance carrier. In
March 1994, Avery, represented by Boundy,
intervened in the state case. The state court
eventually dismissed the carrier and realigned
the parties, with Avery as the plaintiff and
Dolenz as the defendant. In 1995 the state
court issued an interlocutory partial default
judgment against Dolenz.
Boundy then moved for summary judgment
on the tortious interference counterclaim on
the ground that the counterclaim was barred
by the statute of limitations, or alternatively, on
the ground that Boundy’s conduct was not tortious. Boundy also filed an additional motion
for summary judgment asserting that he was
entitled to affirmative relief on his qui tam
claim based on the collateral estoppel effect of
the state court action.
In 1996 Boundy filed his qui tam action against
Dolenz under seal. The complaint alleged that
Dolenz had submitted false claims to the
Government for the treatment of Charlotte
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LITIGATION DEVELOPMENTS
intended to defraud the United States, while
Boundy’s qui tam complaint did not even mention Avery. Therefore, because the record did
not indicate that Boundy’s allegations of FCA
violations were fully and fairly litigated in the
state court proceedings, the court denied
Boundy’s motion for summary judgment on
collateral estoppel grounds.
In its October 2002 memorandum order, the
court granted Boundy’s motion for summary
judgment on the tortious interference counterclaim, but denied his motion for summary
judgment on his own qui tam claim. The court
noted that Boundy argued that any claim for
tortious interference accrued before 1994, and
such a claim is subject under Texas law to a
two-year statute of limitations. However,
Dolenz argued that his counterclaim did not
accrue until he was served with the qui tam
complaint in 2000.
Burns v. Lavender Hill Herb Farm, Inc., 2002
U.S. Dist. Lexis 21826 (E.D. Pa. Oct. 30, 2002)
In October 2002, a Pennsylvania district court
dismissed a pro se qui tam action. Thomas
Burns, a former employee of Lavender Hill
Herb Farm (Lavender), sued Lavender, its sole
shareholder (and Burns’ ex-wife) Marjorie
Lamb, and various other defendants, alleging
that they engaged in a broad conspiracy to sell
conventional produce as organic and engage in
related offenses, which, he alleged, violated the
FCA, the Sherman Antitrust Act, and RICO.
Count 1 alleged that the defendants violated
the FCA by delivering mislabeled produce to
the Government, while Count 2 purported to
assert an FCA claim for filing false federal tax
returns. Burns also asserted numerous state
law claims ranging from civil conspiracy to
assault and battery.
Nevertheless, the court noted, justification is
an affirmative defense to a tortious interference claim. Even assuming arguendo that the
counterclaim was not barred by the statute of
limitations, the court ruled that Boundy had
established the affirmative defense of justification. The court had repeatedly concluded that
Boundy’s qui tam action was not frivolous, and
therefore Boundy was acting under the legal
protection of the retaliation provisions of the
FCA. Because Dolenz had produced no evidence that Boundy lacked privilege or justification for his acts, nor that any intentionally tortious or illegal acts caused Dolenz damage, the
court granted Boundy’s motion for summary
judgment on Dolenz’ remaining counterclaim.
However, the court denied Boundy’s motion
for summary judgment his qui tam claim based
on the collateral estoppel effect of the state
action. To invoke collateral estoppel under
Texas law, a party must show that the facts
sought to be litigated in the second action were
fully and fairly litigated, and were essential to
the judgment, in the prior action, and that the
parties to the second action were cast as adversaries in the first action. The court observed
that the issues in this case were apparently different from the issues in the state case. Avery’s
state action did not raise a claim that Dolenz
TAF Quarterly Review
The defendants moved to dismiss for failure to
state a claim. Burns did not file a response, but
opposed the motion at oral argument. During
oral argument, he abandoned Count 2.
The court dismissed the remaining FCA claim
because Burns had failed to follow the required
procedures for filing a qui tam action. Burns
did not file his complaint in camera and under
seal, instead serving it immediately upon the
Government and all defendants. The court
noted that there was ample case law supporting
dismissal of the FCA claims on that basis.
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LITIGATION DEVELOPMENTS
1992 was from the 1992 harvest. The
Government presented evidence at trial that the
moisture level in samples drawn from the corn
the defendants sold in 1992 was too high to permit the corn to be stored for long periods without spoiling, and argued that this evidence
showed the corn had been harvested in 1992.
The defendants contended that the corn they
surreptitiously sold in 1992 was harvested in
1991 or earlier. To explain the high moisture
levels, they claimed that they sprayed water on
the corn either during storage or before shipment. As an “expert witness” in support of this
claim, the defendants called Harold Smith, the
grain dealer who purchased the 45,000 bushels
under the false name of Jack Peele. Over the
objection of the Government, Smith performed
an in-court experiment in order to show that
spraying corn with water increases the moisture
content. At the close of the trial, the district
court, relying in part on the experiment in its
factual findings, granted the defendants’
motion for judgment on partial findings pursuant to Fed R. Civ. P. 52(c) against the
Government on all claims. The Government
appealed, challenging the admission of the
defendants’ expert testimony and in-court
experiment.
Moreover, the court observed, dismissal was
particularly appropriate in this case because
Burns’ allegations (which sat on the public
docket for seven months before the
Government declined to intervene) appeared to
have little or no merit, and might have unduly
blemished the defendants’ reputations. Noting
that the harm arising from a failure to follow
the FCA procedures cannot be cured, the court
dismissed Burns’ FCA claims with prejudice.
The court also dismissed Burns’ non-FCA
claims. The court ruled that he had failed to
allege antitrust injury, and had no standing to
assert his RICO claims. In the absence of a
viable federal claim, the court dismissed Burns’
state law claims for lack of jurisdiction.
U.S. v. Howard, 2002 U.S. App. LEXIS 23711
(4th Cir. Nov. 18, 2002)
In November 2002, a divided panel of the
Fourth Circuit, in an unpublished opinion,
affirmed the district court’s grant of judgment
on partial findings to the defendant in an FCA
action based on allegations of crop insurance
fraud. The defendants, James Howard and his
corporation Down East Farms, Inc., farmed
approximately 2,400 acres of land in 1992 and
sold approximately 45,000 bushels of corn in
the fall of that year under a fictitious name.
During that same year, the defendants obtained
$85,893 in federal crop insurance payments. In
their application for the insurance payments,
they did not report the 45,000 bushels they sold
that year. If the 45,000 bushels were from the
1992 harvest, the defendants would have been
ineligible for the crop insurance payments.
A divided panel of the Fourth Circuit affirmed.
The majority ruled that the in-court experiment was relevant, satisfying Fed. R. Evid. 402,
and because the case was tried without a jury,
the experiment could not be excluded as
unfairly prejudicial under Fed. R. Evid. 403.
The majority also found that the district court
based its disputed factual findings only on the
experiment, which was admissible, and not on
the opinion testimony of Smith. Therefore, the
majority ruled, to the extent that the district
court may have admitted opinion testimony in
violation of Fed. R. Evid. 701 and 702, such
error was harmless. Therefore, the majority
The Government sued the defendants under
the FCA and various common law theories.
The basis of the Government’s claim was its
contention that the corn the defendants sold in
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Vol. 29 • January 2003
LITIGATION DEVELOPMENTS
expert testimony was harmless error. In the
absence of Smith’s expert testimony, the
Government’s evidence that corn cannot be
rehydrated as the defendants claimed would
have been uncontroverted. Finding that the
district court unmistakably relied on Smith’s
inadmissible expert testimony and ignored the
expert testimony presented by the
Government, the dissent urged that the case
should have been remanded for a new trial.
affirmed the judgment of the district court.
Judge Hamilton dissented. He observed that
the Government presented evidence though
two expert witnesses that the moisture readings from the corn sold in 1992 indicated that
the corn had been harvested from the fields
and not from storage bins, and that the readings could not have been obtained in the manner suggested by the defendants.
The
Government also introduced evidence that
Howard’s purported method for storing and
rehydrating corn was not practical, logical, or
economically beneficial for large samples.
While it might be possible to obtain higher
moisture readings in small samples by the
methods demonstrated in the in-court experiment, the Government argued that it was not
possible to do so with large samples, because of
the highly unstable moisture patterns that
would result.
Nguyen v. City of Cleveland, 312 F.3d 243 (6th
Cir. Nov. 27, 2002)
In November 2002, the Sixth Circuit dismissed
an interlocutory appeal in a § 3730(h) retaliation action. In 1998, Pram Nguyen left his job
with the City of Cleveland and began working
for Parsons Engineering Science, Inc. Nguyen
then brought a qui tam action against the city.
The Government intervened and the case was
unsealed. At that point, according to Nguyen,
the city began pressuring Parsons to remove
Nguyen from all work on city contracts.
Nguyen’s work, which primarily involved city
contracts, came to a standstill, and in
December 1999 Parsons dismissed him.
Nguyen then brought a separate action for
unlawful retaliation in violation of § 3730(h)
against the city and Parsons.
The defendants never identified Smith as an
expert witness and never provided an expert
report. Consequently, his testimony was not
admissible as expert opinion under Fed. R.
Evid. 702. Furthermore, Judge Hamilton
maintained, Smith’s testimony was not admissible as the opinion testimony of a lay witness
under R. 701, because it was based on pure
speculation, not reason, and rested on unstated
and untested scientific assumptions. On crossexamination, Smith admitted that he had no
personal knowledge of farmers adding water to
corn to raise the moisture level; that he had no
education or training concerning corn; that he
was not aware of any method whereby farmers
could add moisture to corn in large quantities;
and that he had no idea how Howard might
have added moisture to the corn he sold, or
how much he might have added.
Parsons argued that the dispute was subject to a
mandatory arbitration clause in Nguyen’s
employment contract. However, in 2000 the
district court rejected that argument, ruling
that a qui tam relator is fundamentally different
from others seeking to avoid arbitration
because the relator acts for the public and not
for himself, and because a conflict exists
between the policies underlying the Arbitration
Act and the FCA. See 121 F. Supp. 2d 643 (N.D.
Ohio 2000), 21 TAF QR 15 (Jan. 2001). Parsons
moved for reconsideration, and on reconsider-
Judge Hamilton rejected the majority’s view
that the district court’s admission of Smith’s
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LITIGATION DEVELOPMENTS
ation the court reaffirmed its prior ruling, but
found that there was substantial ground for differences of opinion and that an immediate
appeal might advance the ultimate resolution of
the matter. Accordingly, the court certified its
earlier ruling for interlocutory review by the
court of appeals. See 138 F. Supp. 2d 938 (N.D.
Ohio 2001), 23 TAF QR 15 (July 2001).
In light of the qui tam action that Nguyen was
bringing against the city, and his substantial
involvement in city contract work at Parsons,
the court of appeals found his concerns at the
time about dispute resolution reasonable.
Because Nguyen raised serious questions as to
whether he had assented to the arbitration
agreement and whether it covered the factual
situation underlying his retaliation claim, there
was a distinct possibility that in deciding the
interlocutory appeal the court of appeals
would render an advisory opinion on a highly
contested issue in a case of first impression.
Therefore, because the district court improvidently granted certification without first
resolving the disputed factual issues, the Sixth
Circuit dismissed the interlocutory appeal.
The Sixth Circuit dismissed the appeal, finding
that the district court had improvidently granted certification. The court of appeals observed
that Nguyen had raised various factual questions concerning the scope of his arbitration
agreement and whether he knowingly waived
his right to have his whistleblower claim heard
in federal court. The district court did not rule
on these questions, but simply assumed that a
valid arbitration agreement existed.
U.S. ex rel. Cosens v. St. Francis Hospital, 2002
U.S. Dist. LEXIS 22937 (E.D.N.Y. Nov. 29, 2002)
The Employee Dispute Resolution Form that
Nguyen signed when he began working at
Parsons stated that he had received a copy of
the Employee Dispute Resolution Handbook
as well as policy information on the dispute
resolution program. However, Nguyen alleged
that he never received these materials.
Moreover, according to Nguyen, when he
received his employment offer he asked the
vice president of Parsons how the agreement
would handle job termination. Nguyen
claimed that the vice president promised to get
back to him but failed to do so. Nguyen then
signed the agreement, assuming it did not
apply to wrongful termination; two weeks later,
according to Nguyen, the vice president
informed him that the dispute resolution program only applied to disputes during the
course of employment. In short, Nguyen
argued that he did not consent to submit
wrongful termination claims to arbitration,
and never agreed to the terms outlined in the
Handbook.
TAF Quarterly Review
In November 2002, in a qui tam Medicare
fraud case, a New York district court granted
the defendant permission to file motions
before the service of the complaint and
ordered the case file unsealed. Kevin Cosens
filed a qui tam action in the Western District of
Washington against 132 hospitals, including St.
Francis Hospital, in 1994, alleging that they
violated the FCA by billing Medicare for experimental cardiac devices. In April 2002, the
actions against the various hospital defendants
were transferred to their home districts. Thus
the action against St. Francis was severed and
transferred to the Eastern District of New York,
and in August the Government filed a notice of
election to intervene in that action.
In its notice, the Government stated that once it
had finished filing its intervention decisions for
all the remaining defendants in the original
action, it intended to apply to have all the cases
consolidated for pre-trial proceedings. The
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LITIGATION DEVELOPMENTS
which the action is currently pending.
Furthermore, the court found, the
Government’s substantive arguments for
opposing motion practice before the service of
the complaint were without merit. The
Government’s claim that all such motions were
premature was overbroad, because it covered
motions that might not be premature, such as
a motion to preserve testimony.
The
Government’s contention that any motion
would likely cover the same issues and request
the same relief as other motions in related
cases was merely speculation.
The
Government’s claim that filing of motions at
this time would disrupt the orderly process of
litigation was similarly unpersuasive and
unsupported by case law. Moreover, the district court in the Western District of
Washington had vacated a prior decision prohibiting motion practice in that action.
Government requested that the court’s file (the
documents transferred from the Western District
of Washington) remain under seal, on the ground
that the documents identified a number of defendants whose cases remained under seal in other
districts. The Government also requested an
order directing St. Francis not to file any motions
until after it was served with the complaint, on
the grounds that any such motions would be premature before the Government filed its application for consolidation.
On August 21, 2002, the court ordered that the
then-current contents of the file (with the
exception of the Government’s notice of election to intervene and the August 21 order itself)
remain under seal, but that all matters filed
after the August 21 order be unsealed. The
court also ordered the Government to serve its
complaint on St. Francis by December 16, 2002,
and directed St. Francis not to file any motions
until it was served. In September, St. Francis
moved for reconsideration of the August 21
order, seeking immediate unsealing of the
entire file and permission to file any appropriate motion, or in the alternative, an order
directing the Government to serve the complaint within ten days. The Government
opposed this motion in its entirety, but later
withdrew its opposition to unsealing the file
because the original district court in the
Western District of Washington had meanwhile
unsealed virtually all of the same documents.
Therefore, the New York district court vacated
its prior order prohibiting motion practice as
well, and granted St. Francis permission to file
any proper motion in compliance with the
rules. However, the court ruled that its prior
order granting the Government 120 days in
which to serve its complaint was reasonable,
and therefore declined to alter the December
16 deadline previously imposed.
U.S. ex rel. Stewart v. Louisiana Clinic, 2002
U.S. Dist. LEXIS 24062 (E.D. La. Dec. 11, 2002)
Upon reconsideration, the New York district
court granted St. Francis’ now unopposed
request for unsealing and lifted its blanket prohibition on the filing of motions before the service of the complaint. The court observed that
under the rules of the Judicial Panel on
Multidistrict Litigation, the pendency of a
motion to consolidate does not suspend pretrial proceedings in the transferor district in
TAF Quarterly Review
In December 2002, a Louisiana district court
granted in part and denied in part the defendants’ motion for an order to protect the confidentiality of nonparty patient records sought
in discovery by the relators in a qui tam action.
Mary Jane Stewart, Jr. and Margaret Catherine
McGinity filed this action in 1999, alleging that
the Louisiana Clinic and several of its doctors
billed Medicare and Medicaid for unreasonable
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LITIGATION DEVELOPMENTS
and unnecessary services and made false statements in connection with requests for payment. In 2001 the Government declined to
intervene. In February 2002, the district court
dismissed many of the relators’ claims pursuant to Rule 9(b), with leave to amend. See
2002 WL 257690 (E.D. La. Feb. 22, 2002), 26
TAF QR 35 (Apr. 2002). The relators then filed
a second amended complaint, and the defendants again moved to dismiss. The court
found that the relators had cured some, but not
all, of the defects identified in its previous
order and denied any further leave to amend.
See 2002 WL 1066745 (E.D. La. May 28, 2002),
27 TAF QR 25 (July 2002).
“relates to the privacy of individually identifiable health information” and is “more stringent” than HIPAA. The defendants argued that
Louisiana provider-patient privilege law is
more stringent than federal law because it
requires either patient consent or a court
order, which may be issued only after a contradictory hearing with the patient.
The relators sought production of nonparty
patients’ medical records, and the defendants
moved for a protective order. They asked the
court to require redaction of all patient-identifying information. They argued that if they were
compelled to produce unredacted information,
they could incur civil liability to the nonparty
patients under Louisiana law. They contended in
this regard that the Health Insurance Portability
and Accountability Act of 1996 (HIPAA) and its
accompanying regulations do not preempt
Louisiana law. They also requested that the
Government be prohibited from receiving copies
of any nonparty patient records produced. The
relator and the Government filed memoranda in
opposition to the defendants’ motions.
[w]ith respect to the form, substance,
or the need for express legal permission from an individual, who is the
subject of the individually identifiable
health information, for use or disclosure of the individually identifiable
health information, provides requirements that narrow the scope or duration, increase the privacy protections
afforded (such as by expanding the criteria for), or reduce the coercive effect
of the circumstances surrounding the
express legal permission, as applicable.
However, the court ruled that Louisiana law
relating to the privacy of individually identifiable health information is not more stringent
than, and therefore does not supersede, federal
law. Under the HIPAA Standards, “more stringent” state law is defined as law that
45 C.F.R. §160.202. The court held that the
Louisiana statute does not address “the form,
substance, or need for express legal permission
from an individual.” Rather, in the court’s view,
“the Louisiana statute provides a means for
negating the need for such permission.”
Accordingly, the court ruled that Louisiana law
does not apply.
The court ruled that federal common law
rather than Louisiana law applies to privilege
questions in an FCA action. The court also
rejected the defendants’ contention that
HIPAA requires it to apply Louisiana privilege
law. HIPAA, which delegates to the Secretary
of HHS the authority to promulgate Standards
for Privacy of Individually Identifiable Health
Information, expressly supersedes any contrary
provision of state law unless the state law
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The relators and the Government argued that the
HIPAA Standards do not apply because the final
compliance date for health care providers is April
14, 2003. The court disagreed, observing that the
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LITIGATION DEVELOPMENTS
Moreover, the court ruled, the Government
was not limited to using the patient records for
the purposes of the instant litigation, but could
use them for any legitimate health oversight
activities. The court noted that the Standards
specifically permit disclosure of such documents to the Department of Justice pursuant
to its function as a “health oversight agency.”
Standards indicate a strong federal policy to protect the privacy of patient medical records, and
would go into effect in a mere four months, at a
time when the lawsuit would still be ongoing, and
the patient records at issue would be in full use by
the parties (trial was set for October 2003). The
court found that both the relators and the defendants had complied with HIPAA by seeking an
appropriate protective order.
Accordingly, the court granted in part the
defendants’ motions for protective orders, by
issuing a protective order as outlined above.
However, the court denied their motions in all
other respects.
However, the defendants wanted all patientidentifying information redacted before they
produced the documents to the relators. The
relators proposed a twofold production in which
defendants would produce a redacted set and a
second, unredacted set marked “confidential, for
counsel’s eyes only,” to be used only by counsel
and their staff. The court found that such a
twofold production best served the interests of
the parties and the nonparty patients. The court
held that the relators needed the patient names
to be able to investigate the validity of claims for
services rendered to those patients. However, the
court limited disclosure of the “counsel’s eyes
only” documents to counsel of record, as well as
two paralegals and one expert per party.
Alcohol Foundation, Inc. v. Kalmanovitz
Charitable Foundation, Inc., 2002 U.S. App.
LEXIS 25720 (2d Cir. Dec. 13, 2002)
In a December 2002 unpublished summary
order, the Second Circuit affirmed a district
court decision dismissing, pursuant to the
public disclosure bar, a qui tam action seeking
to hold alcoholic beverage manufacturers
liable for federal payments of medical costs of
treating alcohol-related diseases. The Alcohol
Foundation, Inc. filed this action in 2000. In
2001 the Government declined to intervene,
and suggested that the court lacked subject
matter jurisdiction over the complaint. In
2002 the district court dismissed the action for
lack of jurisdiction pursuant to the public disclosure bar, rejecting the relator’s argument
that by compiling publicly available facts into a
“mosaic” it became an original source of the
allegations upon which its action was based.
See 186 F. Supp. 2d 458 (S.D.N.Y. 2002), 26 TAF
QR 17 (April 2002).
Finally, the court ruled that the Government
was entitled to receive unredacted copies of the
documents. The defendants argued that
because the Government declined to intervene,
it was a nonparty with no right to participate
in the discovery underway, and if it were to
receive any documents, it should be ordered to
use them only for purposes of the litigation at
bar. However, the court observed that even
when the Government does not intervene, it
remains the real party in interest, and retains
control over several aspects of the litigation.
The court found that these factors entitled the
Government to receive documents produced
during discovery, subject to the same protective order as the parties.
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The Second Circuit affirmed. The court
observed that the relator admitted that the
research it relied upon had been previously
published, and was thus “publicly disclosed.”
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LITIGATION DEVELOPMENTS
upon the transferee court in multi-district litigation cases the powers of a district judge in
any district for the purpose of conducting pretrial depositions.” While it is not entirely settled whether the transferee court has jurisdiction to enforce a subpoena duces tecum under
this grant, the court concluded that the weight
of authority, as well as the purposes of the
multi-district litigation statute, supported a
finding of jurisdiction.
Nevertheless, the relator contended that it had
synthesized this publicly disclosed research
into original “meta analyses” [sic]. The court
of appeals rejected this claim, ruling that the
relator was not the original source of any of the
information upon which it relied. Accordingly,
the Second Circuit ruled, the district court
properly dismissed the action.
U.S. ex rel. Pogue v. Diabetes Treatment
Centers of America, 2002 U.S. Dist. LEXIS
24423 (D.D.C. Dec. 18, 2002)
The court denied the motions of HCA and
AHC for leave to file surreplies. The court
ruled that HCA and AHC took a litigation
gamble in failing to address the merits of the
relator’s subpoenas in their responses to the
motion to compel, and would not now be permitted to file a surreply to put them back in the
game. Nevertheless, the court sua sponte took
notice of any issues raised in the proposed surreplies to the limited extent that they might
have introduced any law that it would be
patently unjust to ignore.
In December 2002, a D.C. district court granted a motion to enforce subpoenas duces tecum
served by the relator on nonparties in a qui tam
action. Scott Pogue brought this action against
Diabetes Treatment Centers of America, Inc.
(DTCA), West Paces Medical Center, and other
persons, alleging that the defendants provided
illegal kickbacks to physicians for patient referrals to diabetes treatment centers, in violation
of the Anti-Kickback and Stark Statutes. Pogue
originally brought this action, which is now
part of a multi-district FCA litigation against
HCA and related entities, in the Middle
District of Tennesee. Subsequently the action
was transferred to the District of Columbia for
coordinated pretrial proceedings.
The court also denied HCA’s motion to quash.
The court observed that this motion was
untimely, that it violated local rules, and that it
was a photocopy of a fax of a previously filed
motion, captioned in a different court and
lacking an original signature.
Pogue served subpoenas duces tecum on HCAThe Healthcare Company, parent of West
Paces, and American Healthcorp, Inc. (AHC),
parent of DTCA. The subpoenas were issued
in the Middle District of Tennessee, where
both HCA and AHC have corporate offices.
HCA and AHC responded with various objections, and Pogue moved to compel. HCA
moved to quash the subpoena.
Because HCA and AHC failed to challenge the
merits of the subpoenas in their responses to
the motions to compel, the court deemed them
to have conceded the merits. Accordingly, the
court granted the relator’s motion to compel.
In another decision in this case issued the same
day, the district court reaffirmed that violations of the Stark and Anti-Kickback Statutes
may give rise to FCA liability. See 2002 U.S.
Dist. LEXIS 24425, summarized under “False
Certification” above at page 5.
The court granted the relator’s motion to compel, and denied HCA’s motion to quash. The
court observed that 28 U.S.C. § 1407 bestows
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Vol. 29 • January 2003
SPOTLIGHT
Notes from the Field: Practicalities of the
Qui Tam “Working Partnership” under the
1986 False Claims Act Amendments
Frederick M. Morgan, Jr. and Jennifer M. Verkamp1
The 1986 Amendments to the False Claims Act dramatically enhanced the
Government’s ability to root out and prosecute fraud. It achieved this primarily by
strengthening the role of the qui tam relators who hire FCA attorneys to investigate and
prosecute their cases. By combining the resources of the private citizenry with the
often- limited resources of the Government, Congress sought to facilitate creation of a
united front against pervasive fraud and abuse by government contractors by empowering citizens (and their lawyers) to rise to the occasion as full partners in aggressive
pursuit of contractor fraud and abuse. Congress intended a “working partnership
between both the Government and the qui tam plaintiff.”
“Working partnership.” The phrase packs a lot into two words. The authors of this article, who represent qui tam relators, strive to report faithfully on the view of the partnership from the other side—government lawyers and investigators—with an eye
toward assessing both how relator’s counsel can best work with their government counterparts, and whether the partnership has been realized. During 2002, we had the privilege of serving on panels at two in-service sessions of federal enforcement personnel
which gave us revealing glimpses into the perspectives of government lawyers and investigators.2 All of the insights we gained were welcome, but some were, frankly, unflattering to the community of relator’s counsel. The feedback of these seasoned federal
attorneys and agents undoubtedly was more valuable for us than for the “students,” and
we were sufficiently struck by their views to think that we should pass them along.
1 The authors are attorneys with Helmer, Martins & Morgan Co., L.P.A., in Cincinnati, Ohio. They can be reached by
e-mail at [email protected] and rmorgan@hmm- law.com.
2 Rick joined Civil Frauds Assistant Branch Director Stephen Altman and McKenna, Long & Aldridge partner Michael
Scheininger at the Department of Justice’s National Advocacy Center in Columbia, South Carolina to discuss qui tam cases
with ACE (Affirmative Civil Enforcement) Co-ordinators from U.S. Attorney’s Offices around the country. We both presented our views on the relator’s role in effective qui tam litigation to a Midwest-region training seminar for Department
of Defense Inspector General’s Defense Criminal Investigative Service (“DCIS”) Special Agents.
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Vol. 29 • January 2003
Are relators providing the resources and oversight Congress intended? And are the federal players facilitating the relator’s role, obstructing it, or both?3 The answers to these
questions vary from case to case (if not day to day), but the Amendments are now
almost two decades old, and patterns have evolved which bear noting. We do not presume to answer these questions, but will try to identify common themes we have
encountered.
The dynamic is strange by nature. Whistleblowers are generally intelligent and articulate people committed to a relatively bright-line approach to their jobs—and their lives.
They believe that questions have answers, and want to know them. Trial lawyers are
used to controlling their cases, as much as possible, and having whatever answers their
clients seek. Government investigators and attorneys, on the other hand, are used to
being accountable within their chain of command; some take well to working with
“outsiders,” while others view relators as no different from any citizen who brings information to the Government—albeit citizens who are open to suspicion due to financial
incentive. The claim is, after all, owned by the Government, which has assigned a portion of it to the relator; aside from retaliation claims, the relator has suffered no cognizable injury.
The result? Sometimes the relationship works like a charm. Relators are informed
regarding investigative progress, treated as valuable sources of information, asked to
review documents or help investigators or attorneys prepare for witness interviews, and
in other ways treated as the full partners Congress anticipated. But in other cases, relators and their counsel are treated like the proverbial mushrooms, with little—sometimes no—information regarding the course of the investigation, and no opportunity
to bring to bear expertise, manpower, or other resources. In nearly every case, relators
and their counsel must consider such matters as whether there are rules which govern
the sharing of information; the nature and extent of their participation during the
sealed phase of the case; and whether the Government need even give them a seat at the
table when it discusses their case with the defendant.
From the perspective of relators and their counsel, there are common-sense responses to
these questions: Of course the Government should keep them informed, involve them in
discussions with the defendants, and give them the opportunity to shed light on whatever information is obtained during the investigation. And sometimes it does. But these
seemingly-obvious points are not in the statute itself. Rather, there are neither clear
answers nor bright lines. Relators and the Government sometimes prosecute the case
3 Two issues are outside the scope of this article. First, we do not delve in detail into how relators should proceed in
full-blown disputes with the United States, although we do discuss the legal standards applicable to opposing extension
requests. Second, we do not discuss the nature of the post-intervention relationship, where it is presumed that relators will
be full parties. See generally United States ex rel. Roby v. Boeing, 995 F. Supp. 790, 796 (S.D. Ohio 1998).
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Vol. 29 • January 2003
side-by-side, and are on the same page from the outset. In other cases, relators and their
counsel find themselves in a more adversarial relationship with the Government.
What makes the difference? Undoubtedly, top-down influences in the guise of “policy”
cannot be wholly discounted. There is a perception among the relators’ bar that the
present federal administration is less relator-friendly than its predecessor. But government practices vary substantially from case to case, making clear that there are not
wooden requirements imposed from the top. Rather, it may seem that many decisions
are driven by the preferences of individual government counsel or investigators.
Our present effort is not to examine the institutional issues of, for example, the
Department of Justice’s occasionally-stated position that relators must, in order to qualify for a relator’s share, satisfy the terms of Rule 9(b), or its recently-declared practice of
excluding relators from participation in their sealed cases unless they agree to waive
claims not precisely detailed in their complaint. Rather, we report the perceptions of
those who have the latitude, on a case-by-case basis, to embrace relators as a litigating
partner, keep them at arm’s length, or simply shut them out. In our presentations, we
heard about these perceptions, and about the reasons for them, from Department of
Justice counsel, Assistant United States Attorneys, and DCIS agents.
The responses were uniform. There is a perception afield that there are too many
overzealous, “under-helpful,” financially-driven relators with weak or non-existent
cases, the investigation of which depletes, rather than augments, federal resources.
With what appears to be increasing frequency, these perceptions lead to an adversarial
relationship between the Government and relators: Instead of alliance against a common adversary, the house risks division. Because this shifts the relationship closer to
that which Congress sought to correct in 1986, relators and their counsel must consider what they can do to facilitate (or, in some cases, re-create) the working partnership
intended by Congress.
The following paragraphs include a brief recap of the legislative history, followed by discussion of perceptions that are obstacles to the working partnership. We then suggest
approaches to overcome these problems in working with government personnel.
While some of what we have learned is discouraging, we bring to this task a great deal
of optimism. This is the golden age of the whistleblower. Time’s “Persons of the Year,”4
the magazine says, “reminded us of what American courage and American values are all
4 Time magazine selected Cynthia Cooper of WorldCom, Coleen Rowley of the F.B.I., and Sherron Watkins of Enron as its
2002 Persons of the Year based on their attempts (which were gallant, but in the context of many qui tam relators of the past
decades, generally unsuccessful) to blow the whistle on wrongdoing in their organizations. See Richard Lacayo & Amanda
Ripley, Persons of the Year 2002, TIME, Dec. 30, 2002.
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Vol. 29 • January 2003
about.” Qui tam cases have put billions back into the Treasury, and the Act’s deterrent
effects cannot be overstated. The difference between a qui tam relator and the
Government has been compared to that between “the enterprising privateer [and] the
slow-going public vessel;”5 it is inconceivable that the Government could want to take
the wind out of the privateer’s sails.
But qui tam cases gore powerful oxen. They cost contractors millions of dollars and
result in bad publicity. When a qui tam investigation causes another form of government waste—the waste of investigative resources on cases which are poorly analyzed
and cavalierly developed—ammunition is provided to those who would attack the qui
tam provisions.
THE LEGISLATIVE HISTORY: WHAT WAS INTENDED
Congress had no illusions regarding governmental inertia, and wanted to empower relators to help the “slow-going public vessel” in its fight against “large, profitable corporations [which] are . . . able to devote many times the manpower and resources available to
the Government” by greatly expanding the role of relators. S. Rep. No. 99-345, at 8,
reprinted in 1986 U.S.C.A.A.N. 5266, 5273. The amendments were intended to “allow
and encourage assistance from the private citizenry” because “only a coordinated effort
of both the Government and the citizenry will decrease this wave of defrauding public
funds.” Id. at 5267. Congressman Berman said:
The law makes clear that this person, the qui tam plaintiff, will be a party
to the action with all the rights and responsibilities that a party receives
under the Federal Rules of Civil Procedure.
* * *
The law we vote on today is intended to encourage a working partnership
between both the Government and the qui tam plaintiff. The public will
be well served by having more legal resources brought to bear against
those who defraud the Government.
132 Cong. Rec. 29315, 29321-22 (October 7, 1986) (emphasis supplied).
The drafters of the Amendments made clear that relators were intended to play a substantial role in the prosecution of the case in order to “keep pressure on the Government”:
5 Hughes Aircraft Co. v. Schumer, 520 U.S. 920, 949 (1997) quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 541 n.5
(1943), quoting in turn United States v. Griswold, 24 F. 361, 366 (D. Or. 1885).
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Another reason for providing for this full party status is to keep pressure
on the Government to pursue the case in a diligent fashion. Even the
United States Government is not without financial limitations. It is not
uncommon for Government attorneys to be overworked and underpaid
given the demanding tasks and frequently overwhelming case loads they
maintain. I do not say this to impugn the ability or character of
Government attorneys, but only to reflect the harsh reality of today’s
funding limitations of Government activities in all areas which include
the budgets of the Government’s prosecuting agencies. If the
Government can pass a law that will increase the resources available to
confront fraud against the Government without paying for it with taxpayer money, we are all better off. This is precisely what this law is intended to do: deputize ready and able people who have know ledge of fraud
against the Government to play an active and constructive role through their
counsel to bring to justice those contractors who overcharge the Government.
Id. (emphasis supplied).
Thus, Congress made clear that relators were expected to keep tabs, if you will, on the
Government’s investigative progress. 6 The Amendment “provides qui tam plaintiffs with
a more direct role not only in keeping abreast of the Government’s efforts and protecting
his [sic] financial stake, but also acting as a check that the Government does not neglect evidence, cause undue delay, or drop the false claims case without legitimate reason.” S. Rep.
No. 99-345, at 25-26, reprinted in 1986 U.S.C.A.A.N. at 5291 (emphasis supplied). The
provisions of the Act granting relators the right to prosecute qui tam allegations demonstrate that Congress fully intended relators to be at the Government’s elbow. Relators
have both the right and the responsibility to “keep pressure on the United States to prosecute the cases.”7 Indeed, “much of the purpose of qui tam actions would be defeated
unless the private individual is able to advance the case to litigation.”8
Thus, Congress empowered relators to become full parties to the litigation of qui tam
cases, with all the rights and responsibilities of any other party. However, how relators
fulfill their parallel roles of fraud-fighter and public watchdog can be problematic.
6 Two courts have observed that “providing the relator a right to recover, a role in the action when the government intervenes
. . . , and a right to object to dismissal or settlement by the government . . . , also serve[s] the additional purpose of giving the
relator the incentive to ‘act [] as a check that the government does not neglect evidence, cause undue delay, or drop the false
claim case without legitimate reasons.’” United States ex rel. Roby v. Boeing, 995 F. Supp. 790, 796 (S.D. Ohio 1998), quoting
United States ex rel. Green v. Northrop Corp., 59 F.3d 953, 964 n.8 (9th Cir. 1995) (internal citations omitted).
7 United States ex rel. McCoy v. California Medical Review, Inc., 715 F. Supp 967, 958 (N.D. Cal. 1989), citing S. Rep. No. 99345, at 24.
8 United States ex rel. Pentagen Technologies International Ltd. v. CACI International, Inc., 885 F. Supp. 80, 82 (S.D.N.Y.
1995) quoting S. Rep. No. 99-345, at 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5289.
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Relators do not have tools (short of seeking judicial intervention, a move which may
itself raise separation-of-powers issues) to make the Government share information.
Their principal goal is to seek an unsealed lawsuit which they can proceed to litigate.
But many relators’ counsel have bought into the thesis, counter-intuitive against the legislative background, that government intervention is essential for success; and it is hardly a secret that the Government often will, when faced with an unsealing which it
opposes, decline intervention.
Congress anticipated this, too, giving relators full powers to continue on their own;
however, the defense bar—rarely opposed on this point by the Government—has succeeded beyond its fondest hopes in creating the impression that a declined case is no
case at all. Thus, factoring in professional obligations to private clients, at least one of
whose interests is, after all, to maximize recovery against the defendant, the choice of
how to proceed in the face of governmental refusal to share information can be quite
confusing. The situation is further complicated by the fact that private counsel have
their own resource limitations. They frequently have little idea what the Government
is doing—or when. A case which sat under seal for four years may suddenly be declined
and placed on the public record. A first-filed case may emerge. And their co-counsel is
a public monolith with decades of preconceptions and an institutional incentive to keep
them in their place. That is, the thinking goes, while it benefits the Government to have
money put back in the Treasury, it does not benefit it to have relators get too big for
their britches. The Government will have case after case after case, year after year after
year (and will, if history is a guide, intervene in no more than one in five of those which
are filed), while most relators’ counsel will have no more than a few cases, virtually no
relator will have more than one.
In sum, there is much to commend the development of collegial relations with government
counterparts wherever possible. But this is possible only with an under standing of the
potential obstacles; and it is in this area where our recent experiences may be of some use.
THE REALITY: WHAT WE LEARNED, AND WHAT YOU CAN DO ABOUT IT
The team approach envisioned by Congress exists, we believe, in no more than a small
minority of relator and government relationships. Sadly, the others range on a spectrum from relators providing sporadic assistance, to relators being treated as no different than any other witnesses. In some cases, relators’ counsel have worked hand in glove
with the Government from the inception of the investigation, reviewing documents,
formulating strategy, and sharing information. In others, relators and their counsel
have little if any involvement during the seal period. What is the difference? Are there
policies that prevent the Government from coordinating with relators or sharing documents and information in some instances?
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In our discussions with government lawyers and agents, we received the same message.
There are neither policies nor clear guidelines. Rather, these decisions are made on a
case-by-case basis. The critical element is trust. Because there are no clear guidelines
or policies regarding what information can and cannot be shared with relators, that
decision is very much in the hands of individual government attorneys and agents.
Many of them have become mistrustful of the qui tam process itself because of bad
experiences with relators and counsel whose qui tam allegations were overblown, causing the diversion of limited resources (yes, the same limited resources with which
Congress was concerned in 1986) to wild goose chases which lead to a finding of no violation, no damage, no intent, or all of these. These cases may be worth, according to
relators or counsel, tens of millions (if not billions) of dollars, and are presented as a
mishmash of allegations with little or no documentation and less legal analysis. And
there is an additional factor upon which we had not focused until this process: The
Government must investigate every case in order to decide whether to join the fray.
Variations on the theme which have caused government counsel to become gun-shy of
qui tam cases include:
•
•
•
•
•
•
Relators who file qui tam actions based on factual allegations which sound bad,
but who have no understanding of the underlying statutory or contractual
framework. The Government then must work to determine whether the facts
actually violated any contractual or other provision; it is, we were told, not
uncommon that they did not.
Relators who file qui tam actions, but know only a tiny part of the contracting
puzzle and lack understanding of how the conduct fits into the bigger picture.
Fundamental misunderstanding of the extent of the relator’s knowledge can
cause the Government to burn its resources investigating only to find out
there is nothing there.
Relators who file blunderbuss complaints, asserting myriad violations which, on
investigation, result in few or no claims with merit.
Relators who demand access to broad categories of information in the Government’s possession and do not tailor requests to information necessary to
prove their claims.
Relators and counsel who offer things they cannot deliver in order to create the
appearance of a willingness to help, rather than offering what they are able to
give. Some in the Government may view offers of assistance with jaundiced
eye, believing that whatever work is committed to will not get done.
Relators or counsel who appear obsessed with the financial aspects of the case,
rather than the work needed to determine whether there is a case, how it
should be proved, and what it is really worth.
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•
•
Relators and counsel who are unwilling to hear about problems with the case.
Government lawyers perceive themselves as more than advocates, and they are
right. They have a public trust to find, so far as they can, the truth. When a
relator’s lawyer reacts to their attempts at objectivity with resentment or accusations, they well may take offense.
Relators who engage in “bracket creep”—the incessant addition of new allegations,
often in an incomplete or haphazard fashion (although it may be difficult to
avoid this when the relator still works for the contractor and violations are
ongoing).
Government investigators approach these issues from a somewhat different perspective
than government attorneys. In general, we found them to have greater empathy for the
hurdles faced by relators, and a greater hunger for meaningful contributions by relators
and their counsel. But they tell the same story. When we asked DCIS agents about their
interactions with relators, they voiced substantial uncertainly regarding when they
could share information (and also noted that the answer varied substantially depending on the government attorney assigned to the case). They voiced even more frustration about their relationships with relators and their counsel. Remember: It is the
agents who must do the investigating. They must investigate every qui tam complaint,
and must do so within relatively tight time constraints. If an agent is working on a file
which she has developed from solid leads and a qui tam comes in, the qui tam gets priority, regardless of relative merit. In other words, understand that when you file a complaint, you trigger the immediate diversion of resources.
Thus it is unsurprising that resource-allocation issues were high on the agents’ list.
Examples:
•
•
•
•
Relators who bring seemingly-serious facts but have no understanding as how those
facts establish either a breach of contract or a False Claims Act violation. This
circumstance requires the agents to do immediate investigation to determine
whether there are real risks afield, which in turn can cause friction with program personnel.
Relator’s counsel who fail to establish realistic client expectations by describing the
process and ensuring that the relator knows how long a qui tam investigation
will take. This circumstance results in impatient relators who call the agents
directly, often, and sometimes early in the morning.
Relator’s counsel who are unaware of, or who fail to prepare relators for, the possibility that the client may be asked to engage in consensual monitoring or otherwise actively assist the agent with her investigation.
Relators who are not candid regarding the extent of their role in the fraudulent conduct,
or the existence of personal animosity or other reasons motivating their whistle-
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•
•
•
•
•
blowing (leaving the investigators to learn such facts from the target), or who are
not candid regarding blemishes in their past which bear upon their credibility.
Relator’s counsel who treat the investigators as employees, making work assignments and demanding the results of investigative activities without acknowledging the burdens under which the agents labor.
Relator’s counsel who promise information or resources and then fail to deliver.
Relators and counsel who significantly overstate the seriousness of the problem, the
existence of safety hazards, or the extent of the harm to the Government.
Counsel who are unwilling to acknowledge the realities of program and resource
limitations. Some agencies have strong institutional resistance to qui tam
claims. Some investigating offices spend the last quarter of the fiscal year with
insufficient money for an agent to buy an airplane ticket. (A suggestion: Ask
an agent what she has to do to obtain approval to conduct an interview.)
Relators and counsel who throw new and incomplete allegations into the mix once
they have the investigator’s attention, expecting that she will switch focus from
work already underway to a new issue.
Anyone who does this work knows that while the trial attorney assigned to the case and
her supervisors will drive the intervention decision and associated resource allocations,
the investigating agents will have substantial input into the decision in many, if not
most, qui tam cases. They do many or all of the field interviews; they convey their first
impressions of relators (and their counsel) to government and agency counsel; and they
decide how far to push before moving on. If they do not push, the case is likely to wither on the vine. Such problems are wholly avoidable.
Some specific suggestions for relators’ counsel:
1.
2.
3.
Unless your client knows that serious and immediate safety risks are present, do
not contact an agent until you understand what the client knows—and does not
know—about the issues. (The exception is where there is a real first-to-file concern. If that is an issue, tell the agent that your investigation is ongoing but that
you need to make an early disclosure. They know the False Claims Act as well as
you do, and will understand.)
Never overstate what your client knows, minimize what she doesn’t know, or sugarcoat her reasons for bringing information forward. Never minimize what she
does not know. Do not oversell your client’s position or knowledge.
Always offer the agent the opportunity to debrief your client as soon as possible—but be aware that “as soon as possible” means after you have fully debriefed
her yourself; used Internet and other resources to research the target and any
related companies in every way you can think of; done everything you can to
identify the standards which govern the target’s conduct; and checked out the
bona fides of the relator.
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4.
Be sure your client knows he may be asked to wear a wire, work to identify witnesses, be consulted about locations of documents, or otherwise actively participate in the investigation.
5. Do not offer help and then fail to provide it. If you say you will review documents,
attend a meeting, compile data, or anything else—follow through.
6. Do not expect the agent to think you have the best—much less the only— case in
the world. These are busy men and women. They are highly trained. They have
other responsibilities in addition to investigating your case (for example, a DCIS
agent may have responsibility for anti-terrorism investigations).
7. Do not take on a qui tam case if you do not have the resources to provide meaningful investigative and administrative help. There are many lawyers around the country now with real expertise in these cases. Find one of them and talk things through.
8. Listen to what lawyers and agents tell you about the constraints they face. Find out
if they need help with photocopying, document review, databasing, legal research,
experts, or whatever. And then provide the help.
9. If new allegations surface, present them to the lawyer or investigator in a concise
fashion, preferably in writing and accompanied by a commitment that the allegations will be included in an amended or supplemental complaint.
10. Listen to what they tell you about the merits of your case. You don’t have to agree;
but you should hear them out. You may be able to bring forward countervailing
information, but even if you cannot, you will learn invaluable information which
will guide your future decision-making—and you will gain respect.
11. To the extent you have information available, focus early and often on the development of a credible damage analysis. Damages are a primary concern of the Justice
Department as it makes its own resource-allocation decisions. Do not be shy about
proposing a model that takes into account all damage caused by a defendant’s conduct, but do not undercut your credibility by generating impossibly high numbers
in hopes of catching the attention of government counsel. Do not tell a government
lawyer or agent that a case is worth millions or billions unless you can credibly
explain. You will best catch their attention by providing defensible numbers.
There is no magic to these suggestions, and many of relator’s attorneys can improve on
them. But the fundamental point is that if you seek a working partnership, you must
both work, and show your willingness and ability to be a partner.
Remember that Qui Tam Cases Can Be Resource Sinkholes for the Government.
Congress planned for relators to provide additional arsenals of resources to the
Government, but did not spend much time thinking about what that meant. The irony
revealed in our discussions with government lawyers and investigators is their concern
that qui tam cases themselves drain resources—a concern which is a significant motivator for those federal actors whose instinct is to keep relators at arm’s length.
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It is also clear that resource decisions are the linchpin of the Government’s approach to
many, if not most, qui tam cases. This is no surprise: Congress attempted to alleviate the
problem of the disproportionate resources of the Government by increasing the role of
relators. Unfortunately, it is not always cut-and-dried. If the Government continues viewing relators as a resource drain, rather than a resource bonanza, we have serious problems.
But that is a part of the current landscape, because lawyers and agents often burn resources
to investigate weak or meritless claims; because demanding relators and relators’ counsel
require time and effort; because efforts are diverted from investigations which are perceived to (and well may) be more worthwhile; and because the Government may actually
be liable, to a defendant that prevails, for that defendant’s costs of defending against supposedly “frivolous” cases.9 We hope that awareness of these factors will allow relators’ counsel
better to provide the help Congress intended, to the inevitable benefit of their clients.
Do Not Trigger Investigations of Overstated Claims
Because of previous experiences with, or apocryphal tales of, far-flung allegations which
turn into dry holes, many government lawyers and agents approach every allegation
which is presented without defined boundaries and well-plotted avenues of proof with
a skeptical eye. For example, while it may be the case that every part which comes from
a defense plant with a bogus quality-program is nonconforming, the Government is
unlikely to be interested in such an allegation unless the relator also can demonstrate
that specific parts have specific problems.
The lesson here is a simple one, and a good one. Draft your complaint and relator’s
statement in a manner which captures the true scope of all problems of which your
client is aware. But also provide details. Details are indispensable in a fraud case, and
their existence gives a qui tam plaintiff enormous credibility.
Make it a Pleasure—Not A Chore—For Them To Involve Your Team.
That many government actors view increased relator involvement as meaning more
work rather than more help is a shame, but it is true. If investigators serve enormous
subpoenas at the relator’s behest and end up with a warehouse full of boxes and no help,
then the perception is reality. If investigators talk to a witness who, they have been
assured, will confirm everything, only to find that he knows nothing (or that his story
contradicts the relator’s), then they have hardly been helped.
On the other hand, where relator’s counsel is able to provide government agents and
lawyers with real help—for example, placing a team of paralegals in the agent’s office to
9 This is discussed in more detail below.
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go through those documents, or providing a notebook of documents for use in questioning witnesses —the agent will become accustomed to such help. If relators’ counsel
routinely provided government counsel with credible legal analysis of damage issues, for
example, they would undoubtedly find that the barriers between private and government
attorneys would melt away, and a team would more often than not begin to form.
In short, you get what you pay for. The currency in these cases is not just money, but
resources. If relators’ counsel do not provide capable support to the litigating effort,
they are not meeting the challenge laid down in the statute. And while doing everything
one can to help does not ensure a working partnership, it cannot possibly go unnoticed—and will, in the long run, not go unrewarded.
Be Aware That The Taxpayers Are at Risk For Contractor’s Costs for Litigating NonIntervened, Unsuccessful Claims
Another concern of government lawyers arises from the fact that a defendant who prevails can charge the taxpayers for up to 80% of its legal bills.10 This cannot occur where
the contractor is found liable, or if there is a “judicial determination that the contractor
sought to induce its employees to commit fraud against the government.”11 But where
a case is worthless and the contractor succeeds in dismissal or summary judgment, this
provision can be a serious problem—and a serious misallocation of resources resulting
from the overzealous pursuit of a meritless claim. So relators should bear in mind that
when they file a case that they don’t fully understand and assume that the Government
will handle it for them, they are setting in motion a chain of events which may result in
Treasury dollars flowing to Washington law firms.
When they Say It’s Not About the Money . . .
Sometimes, and for some people, it’s about the money. This is hardly surprising, since
each and every governmental actor with whom a qui tam litigator or relator has contact
is acutely aware of the relator’s financial interest—and that the upside may be many times
their yearly salary. And they know that the relator’s counsel expects to recover attorney’s
fees, which some perceive as depleting resources available for settlement or judgment.
That said, it is not our experience that they believe relators or their counsel are in it just
10 The Federal Acquisition Regulations allow government contractors to recoup the costs incurred in connection with
defending a False Claims Act action if (1) the proceeding resulted in a settlement; (2) the United States did not intervene;
(3) the costs were not otherwise unallowable by regulation or by separate agreement with the United States; and (4) “the
contracting officer, in consultation with his or her legal advisor, determines that there was very little likelihood that the
third party would have been successful on the merits.” 48 C.F.R. § 31.205-47(c)(2).
11 Boeing North American, Inc. v. Roche, 298 F.3d 1274, 1281 (Fed. Cir. 2002).
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for the money (the work, done right, is just too hard), but it is inescapable that certain
interests of the working partners diverge. Indeed, in each of the seminars in which we
participated, the subjects of large relator’s shares, contingent and hourly attorney fees,
and financial motivation to pursue frivolous cases came up, and undoubtedly they
come up repeatedly in discussions between the contractor’s lawyer and government
counsel and agents.
Nobody expects relators’ counsel to work for free, and few in the Government resent the
fact that relators are rewarded for the personal and professional risks they take and the
time they invest. While the precise relationship between relators and their counsel is a
matter between them (and perhaps the court), if these subjects are raised by government personnel and relators’ counsel evade or dissemble, they lose credibility and defeat
the trust essential to the partnership. On the other hand, most federal professionals are
doing public work for reasons of commitment to principle. Relators’ counsel should
not hesitate to make it clear that they, too, are doing this work for the right reasons, and
the most effective way to demonstrate that fact is by being a working partner.
Do Not Underestimate the Contractor’s Access to the Government, or Play Into the
Contractor’s Hands
A word about opposition tactics. Relators’ counsel must not underestimate the access
government contractors have to relators’ potential allies in government service, and
should not forget that the relationship between the United States and, say, Lockheed
Martin is a long-standing one. By way of example, our presentation at the DCIS seminar was preceded by a speech by in-house counsel for a large defense contractor. While
we were not able to observe, we have no doubt that his presentation sought to fuel the
fire of anti-relator sentiment. Contractors routinely assert that relators are out for personal gain and that qui tam stands for “he who sues more for himself than for the
Government.” Familiar themes of the contractor community are that qui tam suits are
a “litigation lottery” and that there is no mechanism by which the Government can
avoid investigating “frivolous” cases. Contractors will also assert that the Government
should submit reasons for declination to the court, and that the relator should not be
allowed to benefit from documents obtained during the government investigation
because then “the playing field is unequal.”
The seminar speaker happened to work for a contractor against whom we shortly thereafter secured summary judgment in a non-intervened case about which several of the
agents knew. So far as we know, he did not gain much sympathy from his audience that
day. But the wolves are at the door, and the same lamentations are heard day in and day
out from lobbyists, bureaucrats, and others who view qui tam cases as get-rich-quick
schemes which take government resources away from the real business at hand.
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In sum, the message we took away from both lawyers and investigators was that while
they very much value the efforts of whistleblowers with strong cases, they are frequently frustrated that they must treat all cases basically the same way. While they want to
work closely with relators and their counsel, they are concerned that promises will be
made and broken; that the relator’s knowledge will be so slight as to cause enormous
wasted time and effort; and that, in a nutshell, their own work will fail to secure any
benefit to the United States because they are provided with weak or seriously incomplete information. This is not to say that they expect it on a platter: They do not. They
understand that relators almost always know only part of the story. But so many cases
have created so much bad law and ill-will that it is necessary that relators’ counsel do
everything they can to ensure that good cases are brought, and brought with the highest level of professionalism.
These cases are serious business. You can bet that as soon as the contractor learns
about the investigation, its lawyers will fall all over themselves to provide the government with documents, summaries, PowerPoint presentations, scientific explanations,
regulatory analysis, and anything else that counsel thinks will help pull the fat out of
the fire. Unless plaintiffs proceed professionally, carefully, and diligently, they can be
outflanked.
You Are Not Helpless When It Just Doesn’t Work.
Sometimes, the Government just won’t take relators’ help. Maybe it doesn’t need their
help. Maybe, albeit extremely rarely, there are significant national-security concerns.
Maybe the responsible officials know something that counsel does not know about the
relator. Maybe they don’t like him, or his counsel. Sometimes there may be no
recourse; sometimes you may be able to open avenues of communication.
The best way to avoid this, of course, is to offer and deliver support, information, and
resources from the first time you talk to the government agent or attorney, but if you
find yourself in this corner, don’t try to fight your way out. The worst thing you can do
is to engage in recrimination or attack. The second-best thing you can do is to seek
judicial intervention. The best thing you can do, in our judgment, is to add resources
yourself. In other words, put your money where your mouth is. Hire an expert witness
in a relevant field. Provide a summary or database of documents. Draft proposed subpoena requests. But always understand that the Government intervenes in a small
minority of cases, and that it is a very easy thing, in many cases, for an AUSA or Civil
Division attorney to obtain authority not to intervene in your case. That may be a good
thing: Recoveries in non-intervened cases can be high, and the Government is not the
final arbiter or whether a case has merit. But before you rattle the cage of lawyers or
agents regarding not keeping you in the loop or moving quickly enough, remember—
Be careful what you ask for.
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We note in this context a course of action—available, but perilous—in cases where the
Government seems not to be taking a case seriously, you are concerned that evidence
may be slipping away due to the unrestrained use of the seal period, or you are simply
kept in the dark regarding what is or is not being done and so cannot be sure you are
protecting your client’s interests. You may oppose an extension request in order to
ensure that your case is being diligently prosecuted. There is certainly legal authority to
support such a step.12 We must strongly caution, however, that this approach will certainly induce tension, and is likely, if it succeeds in causing a court to deny further
extensions, to result in a declination decision. Be certain your own house is clean before
you criticize the housekeeping of another, and be prepared to step to the plate—that is,
to litigate the case on your own, without government intervention—before you ask the
court to become involved.
Your goal, of course, is to do everything you can to avoid becoming the adversary of the
United States whether it intervenes or not. Congress intended relators and the
Government to join forces to flush out and aggressively prosecute abuse of taxpayer funds.
When this becomes more of an adversarial relationship rather than a working partnership, both sides lose sight of what they are supposed to be doing. The public fisc will suffer unless the situation is repaired—or the relator has the resources to go it alone. While
there will undoubtedly be times when relators must stand and fight against the executive
branch, we hope that these pages provide a bit of insight into the reasons for many of the
reactions relators’ counsel get from federal lawyers and investigators.
12 The Act requires the United States to show “good cause” to extend the seal on the case beyond 60 days. 31 U.S.C.
§ 3730(b)(3). “The ‘good cause’ requirement of the statute is . . .a substantive one, which the government can only satisfy
by stating a convincing rationale for continuing the seal.” United States ex rel. Costa v. Baker & Taylor, Inc., 955 F. Supp.
1188, 1190 (N.D. Cal. 1997). “The legislative history of the False Claims Amendments Act makes abundantly clear that
Congress did not intend that the government should be allowed to prolong the period in which the file is sealed indefinitely.” Id. The Senate Report which accompanied the 1986 Amendments states:
The Committee feels that with the vast majority of cases, 60 days is an adequate amount of time to
allow government coordination, review and decision. Conse quently, “good cause” would not be
established merely upon a showing that the government was overburdened and had not had a
chance to address the complaint.
Id., quoting S. Rep. No. 99-345, at 24, reprinted in 1986 U.S.C.C.A.N. 5266, 5290. “Congress stated, ‘the government should
not, in any way, be allowed to unnecessarily delay lifting of the seal from the civil complaint or processing of the qui tam
litigation.’” United States ex rel. McCoy v. California Medical Review, Inc., 715 F. Supp 967, 969 n.1 (N.D. Cal. 1989); see also
United States ex rel. Fender v. Tenet Healthcare Corp., 105 F. Supp. 2d 1228, 1230 (S.D. Ala. 2000) (“Unnecessary delay causes injury to the relator.”). “Congress clearly intended to bestow upon relators in proceedings under the Act substantial
power to force the prosecution of cases.” McCoy, 715 F. Supp. at 970.
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CONCLUSION
The future of the working partnership planned by Congress is promising, but far from
secure. The False Claims Act was repeatedly changed over the past 140 years as it moved
toward what some have called “golden mean” between whistleblower involvement and
federal interests. While the current version of the Act comes reasonably close to this
goal, problems remain. If relators’ counsel do not come to terms with them, they risk
their credibility and, in the long run, their ability to serve as working partners in the
fight against government contract fraud.
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INTERVENTIONS AND SUITS FILED/UNSEALED
ALLEGATION: KICKBACKS AND
SUBSTANDARD MATERIALS
ALLEGATION: ALTERING RADIATION
EXPOSURE RECORDS
Utah Department of Transportation
Lockheed Martin
In October 2002, a qui tam lawsuit was
unsealed alleging that numerous defendants,
including the Utah Department of
Transportation and contractors working on
the reconstruction of Interstate 15 through the
Salt Lake Valley in Utah, used substandard
materials and solicited kickbacks during the
four-year project. The complaint also alleges
that the defendants knowingly made claims
and received payment for more dirt and other
fill material than what was actually supplied
for the I-15 project. Steven Maxfield, CEO of
Mighty Max Truck Parts, Inc., and John
Peterson, an independent trucker, filed this qui
tam suit in 1999. The Government has not yet
decided whether to intervene.
In November 2002, a qui tam lawsuit was
unsealed alleging that Lockheed Martin,
Lockheed Martin Utility Services, and the U.S.
Enrichment Corporation altered the records of
workers’ exposure to radiation at the
Portsmouth Gaseous Diffusion Plant in
Piketon, Ohio. The defendants allegedly provided the false and unreliable exposure readings in order to receive federal incentive payments for operating a safe work environment.
Jeff Walburn, a plant security guard, filed this
qui tam action in 2000. The Government has
not yet decided whether to intervene.
ALLEGATION: BILLING MEDICARE
FOR CHEMOTHERAPY SERVICES
“INCIDENT TO” PHYSICIAN SERVICES
NOT SUPERVISED BY PHYSICIANS
ALLEGATION: FAILURE TO SUPERVISE
SURGERY
U.S. ex rel. Callahan v. Oncology and
Hematology Associates of Southwest Virginia,
Inc., No. 7:00CV00350 (W.D. Va.)
U.S. v. Henry, No. 3:02CV-671-S (W.D. Ky.)
In November 2002, the Government reportedly filed an FCA suit against Kentucky
Lieutenant Governor Steve Henry for defrauding Medicare and Medicaid. Henry, who also is
an orthopedic surgeon in charge of supervising
surgeons in training at the University of
Louisville, is accused of billing for his services
during 44 operations he did not participate in.
Medicare and Medicaid regulations require
that supervising doctors be present during
surgery to bill for their time. The Government
estimates that Dr. Henry’s improper billing
cost the two programs $60,000.
TAF Quarterly Review
In November 2002, the Government intervened in a qui tam suit against an oncology
practice and 12 owner physicians. The suit
alleges that the defendants billed for intravenous chemotherapy services provided incident to physician services on holidays and
weekends when no physicians were present.
Other allegations include upcoding patient
referral office visits to consulting services,
charging for chemotherapy drugs provided
free of charge by drug manufacturers, and
charging for unnecessary tests performed by
the in-house medical laboratory. The complaint alleges about $15 million in single damages. Timothy Callahan, a former clinic office
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INTERVENTIONS AND SUITS FILED/UNSEALED
Haven Hospital, St. Francis Hospital,
Washington Hospital Center, Emory
University Hospital, Northwestern Memorial
Hospital, and the Hospital of the University of
Pennsylvania, among others, for submitting
false claims to Medicare. The Government
alleges that from 1987 to 1995 these hospitals
falsely charged Medicare for procedures
involving experimental cardiac devices that
were not reimbursable. Cosens, a former medical device salesman, initially filed qui tam
actions against 132 hospitals. December’s
interventions bring to 40 the number of hospitals that the Government is currently pursuing.
31 other hospitals have settled for a combined
total of over $42 million. See 28 TAF QR 54
(Oct. 2002) and this issue’s Judgments and
Settlements section below at page 51. Don
Warren and Phil Benson of the Warren &
Benson Law Group (San Diego & Los Angeles)
represent the relator.
manager, filed this suit in 2000. Candace
McCall of Candace McCall, P.C. and Warner
Young III of Allred, Bacon, Halfhill & Young,
P.C. (both of Fairfax, Virginia) represent the
relator. Trial Attorney Susan Lynch of the DOJ
Civil Division and Assistant U.S. Attorney Julie
Dudley are handling the case for the
Government.
ALLEGATION: BILLING FOR
EXPERIMENTAL DEVICES
U.S. ex rel. Cosens v. Cedars-Sinai Medical
Center, No. CV 02-03264 (C.D. Cal.)
U.S. ex rel. Cosens v. Loma Linda University
Medical Center, No. 02-06153 (C.D. Cal.)
U.S. ex rel. Cosens v. St. Louis University
Hospital, No. 4:02CV1390 DJS (E.D. Mo.)
U.S. ex rel. Cosens v. Barnes-Jewish Hospital,
No. 4:02CV13901 DJS (E.D. Mo.)
ALLEGATION: FALSIFYING MAGAZINE
CIRCULATION TO OBTAIN DISCOUNTED
POSTAGE RATES
U.S. ex rel. Cosens v. Stanford Hospital and
Clinic (N.D. Cal.) No. C99-4121 MJJ
U.S. ex rel. Sprague v. Medical World
Communications
U.S. ex rel. Cosens v. Yale-New Haven Hospital
(D. Conn.) No. 3:02CV688
In December 2002, the Government intervened in a case against Medical World
Communication, a medical magazine publisher. The Government alleges that from 1994 to
2000, Medical World purposely inflated its
subscriber numbers in order to qualify for
reduced postage rates. The false circulation
numbers allegedly enabled the company to
avoid paying more than $2 million in postage.
Peter Sprague, Medical World’s former chief
operating officer, filed this qui tam action in
1999. Nicholas Harbist represents the relator.
U.S. ex rel. Cosens v. St. Francis Hospital
(E.D.N.Y.) No. 02-CV-2324
In November 2002, the Government intervened
in four cases filed by Kevin Cosens against
Cedars-Sinai Medical Center, Loma Linda
University Medical Center, St. Louis University
Hospital, and Barnes-Jewish Hospital for submitting false claims to Medicare.
In December 2002, the Government intervened in 27 additional cases filed by Cosens
against Stanford Hospital and Clinic, Yale-New
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Vol. 29 • January 2003
INTERVENTIONS AND SUITS FILED/UNSEALED
ALLEGATION: MEDICARE/MEDICAID
KICKBACKS AND HOME OFFICE
NURSING HOME COST REPORT FRAUD
Virginia) represent the relator. Trial Attorney
John Henebery of the DOJ Civil Division and
Assistant U.S. Attorney Julie Dudley are handling the case for the Government.
U.S. ex rel. VanThiel v. HCMF Corp., No. 7:99
CV 00300 (W.D. Va.)
ALLEGATION: FEMA DISASTER RELIEF
CLAIMS FOR SERVICES NOT PROVIDED
In December 2002, the Government intervened in the remaining claims of a qui tam suit
alleging that defendants HCMF Corp. and
Pharmerica Drug Systems, Inc. violated the
Anti-Kickback Act when HCMF sold its institutional pharmacy operation to Pharmerica.
The suit alleges that HCMF and its officers
formed a pharmacy operation, which operated
for only about two days, and then sold it for
$7.2 million. The only potential sales base consisted of contracts for HCMF nursing homes,
approximately 90% of whose occupants are
Medicare and Medicaid beneficiaries.
U.S. ex rel. Hensley v. Guy C. Eavers
Excavating Corp., No. 3:00CV0046 (W.D. Va.)
In December 2002, the Government intervened in a qui tam action alleging that the Guy
C. Eavers Excavating Corp., a contractor for the
Virginia Department of Transportation
(VDOT), caused the submission of false claims
for disaster relief funds from the Federal
Emergency Management Agency (FEMA).
The suit alleges that the defendants contracted
for emergency flood and road work with
VDOT for state and rural highways, funded
heavily by FEMA. According to the complaint,
the defendants submitted invoices for the use
of up to double the number of trucks it owned
and for ghost employee drivers, and charging
higher than allowed rates for the type of trucks
used, over a period of about 5 months. The initial settlement demand is $1.3 million.
Glendon Hensley, the owner of a competing
truck company, filed this action in 2000.
Candace McCall (Fairfax, Virginia) represents
the relator. Assistant U.S. Attorney Julie
Dudley and several FEMA attorneys are handling the case for the Government.
Previously, in July 2002, the Government intervened in the allegations of home office cost
reporting fraud in this qui tam suit. In those
claims, the relator alleged that HCMF charged
Medicare and Medicaid for home office
salaries and health insurance benefits for persons not employed by HCMF. All defendants
except Pharmerica have agreed to settle the
home office cost report fraud claims for $4.25
million, $1.7 million of which is criminal restitution from HCMF and one of its officers.
This settlement is being treated as an alternative proceeding under the FCA. A portion of
the $4.25 million will be paid to the State of
Virginia to compensate for losses from the
Medicaid program fraud.
ALLEGATION: UPCODING MEDICAID
AND MEDICARE CLAIMS
Dr. Michael Judge
William VanThiel, a former chief operating
officer of HCMF Corp., filed this action in
1998. Candace McCall of Candace McCall,
P.C. and Warner Young III of Allred, Bacon,
Halfhill & Young, P.C. (both of Fairfax,
TAF Quarterly Review
In December 2002, the Government reportedly
filed an FCA suit against Dr. Michael Judge of
Warwick, Rhode Island for defrauding
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INTERVENTIONS AND SUITS FILED/UNSEALED
Medicaid and Medicare. The complaint alleges
that from 1997 to 2001 Dr. Judge upcoded 90%
of his reimbursement claims. The Government
also has charged Dr. Judge with criminal
Medicaid fraud.
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JUDGMENTS AND SETTLEMENTS
U.S. ex rel. Foster v. Pfizer (E.D. Tex.)
U.S. ex rel. Cosens v. LDS Hospital, No.
2:02cv01018 (D. Utah)
In October 2002, the Pfizer Corporation
agreed to pay $49 million to settle allegations
that it defrauded Medicaid. The Government
will receive $27,913,300 plus accrued interest.
The remainder of the settlement is to be divided among 40 states. The Government alleged
that Pfizer fraudulently avoided fully paying
the rebates owed to the states and federal government for the cholesterol-lowering drug
Lipitor. The Medicaid Rebate program
requires drug manufacturers to report to CMS
the best price they offer to any commercial,
for-profit customer, and to pay a quarterly
rebate based on that best price. Pfizer failed to
disclose $250,000 of cash discounts given to a
managed care customer in Louisiana, which
allowed Pfizer to retain over $20 million in
Medicaid Rebates owed to Medicaid. David
Foster, a former Parke-Davis/Warner-Lambert
employee, filed this qui tam action. The relator’s share is $5,945,958 or 21.3% of the settlement recovery. Joel Androphy of Berg &
Androphy (Houston) represented the relator.
In October 2002, DOJ announced that LDS
Hospital in Salt Lake City, Utah had agreed to
pay $850,000 to settle allegations that LDS
improperly billed Medicare for experimental
cardiac devices undergoing FDA clinical trials,
in violation of a Medicare manual rule excluding coverage of such services. Kevin Cosens, a
former medical device salesman, has filed similar suits against 132 hospitals, 31 of which
have previously settled for a total of over $42
million. See 28 TAF QR 54 (Oct. 2002).
Cosens will receive 20% of the LDS settlement,
and to date has received over $8 million in total
settlement share. Don Warren and Phil
Benson of the Warren & Benson Law Group
(San Diego & Los Angeles) represented the
relator. HHS OIG investigated the matter.
David Cohen and Lani Remick of the DOJ’s
Civil Division is handling these cases for the
Government.
U.S. ex rel. Weatherford v. Frigidaire Home
Products, No. 00-4168 (W.D. Ark.)
U.S. v. Gentiva Health Services, Inc.
(E.D.N.Y)
In October 2002, DOJ announced that
Electrolux Home Products, formerly Frigidaire
Home Products, had agreed to pay $687,781 to
settle allegations that it defrauded the U.S.
Customs Service. The Government alleged that
from 1996 to 2001 Electrolux failed to declare
on entry summaries it filed with the Customs
Service the true value of certain tooling molds,
assembly labels, and other parts that it provided to overseas manufacturers. Jay Weatherford,
a former customs compliance officer with
Electrolux, filed this qui tam action. The
Customs Service investigated this matter.
In October 2002, DOJ announced that Gentiva
Health Services had agreed to pay $3.15 million to settle civil allegations of Medicare
fraud. The Government alleged that Gentiva,
one of the largest home health care providers
worldwide, inflated the costs of home care visits to Medicare beneficiaries by including
Medicare-covered visits and non-covered visits
in its calculations of the average cost of home
health care visits. The settlement amount represents double the amount of damages caused
by Gentiva’s alleged misconduct. The HHS
OIG investigated this matter.
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JUDGMENTS AND SETTLEMENTS
pneumonia diagnosis code in order to receive
higher reimbursements rates from Medicare.
Health
Outcomes
Technologies,
a
Pennsylvania-based software company, filed
this qui tam action in 1996 after analyzing dignosis code billing patterns using publicly available MedPars data. The relator’s share of the
recovery was $57,540. Michael Holsten of
Drinker, Biddle & Reath (Philadelphia) represented the relator. The HHS OIG investigated
this matter.
U.S. ex rel. Boulris v. McCarthy, No. 98-CV2158 (M.D. Fla.)
In October 2002, Dr. Owen McCarthy and his
wife, Dottie McCarthy, reportedly agreed to pay
$600,000 to settle a qui tam suit based on allegations of Medicare fraud. The Government
alleged that the McCarthys upcoded claims and
improperly billed for the services of unqualified
physician assistants. Dr. Craig Boulris, a former
associate of the McCarthys, filed this qui tam
action in 1998. The relator’s share was $84,000.
Christopher Casper and W. Christian Hoyer of
James, Hoyer, Newcomer, & Smiljanick, P.A.
(Tampa) represented the relator.
U.S. v. Venezia (D. Mass)
In October 2002, DOJ announced that David
Venezia had agreed to pay $55,500 to settle civil
claims against him for submitting false and
fraudulent claims to the Department of
Education and the Department of the Army.
The Government alleged that Venezia, while
employed by the Army, improperly received
funds from the Army to pay for college tuition
and then falsified a death certificate to fraudulently
discharge
his
federally
guaranteed/insured student loans. See 26 TAF
QR 42 (April 2002). The Department of
Education, Department of the Interior,
National Park Service, and Department of the
Army investigated this matter. Assistant U.S.
Attorney Patricia Connolly represented the
Government in this case.
U.S. v. Al Shalchi, No. SA01CA0905HG (W.D.
Tex.)
In October 2002, Najah Al Shalchi reportedly
agreed to pay $563,000 to settle allegations that
he and his son filed hundreds of false claims
for Medicare reimbursement. Al Shalchi, a
physician and owner of Internal Medicine of
San Antonio, and Hareth Al Shalchi, his son
and employee, were sued for submitting claims
for in-hospital critical care services that were
never rendered. The investigation and subsequent lawsuit began after several Medicare
beneficiaries called a Texas complaint hotline
to report that they were being billed for services they did not receive. Assistant U.S.
Attorney Harold Brown represented the
Government.
U.S. ex rel. Rauh v. McLeod Regional Medical
Center, No. 3 98-3178 (D.S.C.)
U.S. ex rel. Health Outcomes Technologies v.
Roger Williams Medical Center
In November 2002, DOJ announced that
McLeod Regional Medical Center of the Pee
Dee, Inc. had agreed to pay $15,909,470 to settle allegations of health care fraud. This is the
largest FCA settlement ever in South Carolina.
The Government alleged that McLeod overpaid to acquire six physician practices in order
to induce the physicians to refer their patients
In October 2002, DOJ announced that Roger
Williams Medical Center had agreed to pay
$400,000 to settle Medicare fraud allegations.
The Government alleged that Roger Williams,
a Rhode Island-based hospital, upcoded a
TAF Quarterly Review
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Vol. 29 • January 2003
JUDGMENTS AND SETTLEMENTS
Davidson represented the Government in this
matter.
to the hospital. The Government further
alleged that McLeod submitted false claims to
Medicare, Medicaid, and TRICARE, the military’s health care program, through the physicians with whom McLeod had improper financial relationships. Richard Rauh, a former
McLeod employee in charge of the physicians
services program, filed this qui tam action in
1998. Rauh waived all right to recover a share
of the settlement or to recoup any attorneys’
fees under the FCA in exchange for a release
from civil liability for his own role in the
alleged misconduct. The HHS OIG, FBI, and
DCIS investigated the matter.
U.S. v. Marshall
In November 2002, Daniel Marshall, M.D.,
reportedly paid $986,321 to settle allegations
that he upcoded claims for Medicare reimbursements. The Government alleged that
from 1996 to 2002 Dr. Marshall billed
Medicare for unnecessary exams and more
extensive exams than he actually performed on
nursing home residents.
Rancocas Valley Anesthesia Associates
U.S. ex rel. Kneepkens v. Dialysis Holdings
Inc., No. 97-10400 (D. Mass)
In November 2002, Dialysis Holdings reportedly agreed to pay $4.1 million to settle allegations that its predecessor corporations
defrauded Medicare by performing medically
unnecessary laboratory tests and blood draws
on its sickest patients. The Government
alleged that Dialysis Holdings’ predecessor
repeatedly split a single series of blood tests
into two and administered the series on two
different days, thereby creating a second false
claim for reimbursement. A former general
manager of Dialysis Holdings filed this qui tam
action. The relator’s share was $697,397 or
17% of the total recovery.
In November 2002, Rancocas Valley Anesthesia
Associates (RVAA) and anesthesiologist Mark
Goldberg agreed to pay $470,000 to settle
Medicare overbilling allegations.
The
Government alleged that from January 1995 to
March 1998 RVAA and Goldberg billed
Medicare for more time than was properly billable for anesthesia services provided by RVAAassociated physicians. The civil settlement,
which resolved the dispute without the filing of
a lawsuit, also mandates that RVAA be permanently excluded from participation in
Medicare, Medicaid, and all other federal
health insurance programs and that Goldberg
enter into a five year integrity agreement with
the Government.
Woods Memorial Hospital District
Franvale Nursing Home (D. Mass)
In November 2002, Woods Memorial Hospital
District agreed to pay $1.2 million to settle allegations of Medicare fraud. The Government
alleged that Woods Memorial falsified cost
reports and upcoded pneumonia diagnosis
codes. The investigation stemmed from a
Medicare audit of the hospital’s cost reports.
Assistant U.S. Attorney Cynthia Freemon
In November 2002, DOJ announced that
Quality Care Centers of Massachusetts, d/b/a
Franvale Nursing Home, and its parent company, Pioneer Health Care Inc., had agreed to pay
$89,994 to settle allegations that the nursing
home filed false and fraudulent claims under
the Medicare and Medicaid programs. The
Government alleged that from January 1994 to
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JUDGMENTS AND SETTLEMENTS
U.S. ex rel. Johnson-Porchardt v. Rapid City
Regional Hospital
December 1996, the nursing home improperly
billed for medical supplies not covered under
Medicaid and Medicare. The HHS OIG investigated the matter. Assistant U.S. Attorney
Patricia Connolly represented the Government.
In December 2002, Rapid City Regional
Hospital and Oncology Associates LLP reportedly agreed to pay $6,525,000 to settle allegations of Medicare fraud. Rapid City Regional
will pay $6 million while Oncology Associates
will pay $525,000. The Government alleged
that Rapid City Regional billed Medicare for
referrals from doctors to whom it gave sweetheart deals on rent and other expenses in violation of the federal Stark Law. This is the largest
False Claims Act settlement in South Dakota
history. Karen Johnson-Porchardt, a former
hospital administrator, filed this qui tam suit in
2001. The relator’s share will be determined at
a January 2003 federal court hearing. David
Lillehaug represented the relator.
U.S. v. Sandler (E.D. Mo.)
In November 2002, DOJ announced that Scott
Sandler had agreed to pay $58,325 to settle
allegations that he submitted false claims to
Medicare from January 1995 to June 1995. The
Government alleged that Sandler and his coconspirators improperly billed Medicare for
medically unnecessary incontinence supplies
for some 600 Chicago area nursing home residents. The Government estimated that a total
of $1.5 million was improperly paid out as a
result of the false billings. The FBI investigated the matter. Assistant U.S. Attorneys James
Crowe Jr. and Suzanne Gau represented the
Government in the case.
U.S. ex rel. Romano v. Columbia University,
No. 00-8798 (S.D.N.Y.)
Lovelace Health Systems
In December 2002, Columbia University reportedly agreed to pay $5.1 million to settle allegations that it defrauded Medicaid.
The
Government alleged that Columbia University
obstetricians routinely billed Medicaid for deliveries actually handled by certified nurse midwives. Denise Romano, a former Columbia
University employee, filed this qui tam action.
The relator’s share was approximately $1.122
million or 22 percent. Timothy McInnis represented the relator. Assistant U.S. Attorney Sheila
Gowan represented the Government in this case.
In December 2002, DOJ announced that
Lovelace Health Systems had agreed to pay
$24.5 million to settle Medicare fraud allegations. The Government alleged that Lovelace
Health Systems, a hospital and HMO owned by
Cigna Corporation, submitted costs reports to
Medicare that it knew contained unallowable
costs. Additionally, the Government alleged
that the hospital set aside cash reserves in an
amount equal to the unallowable costs in order
to repay the Government in the event that the
unallowable costs were detected. Mark Razin,
a former employee of Lovelace Health System’s
cost report consultant, filed this qui tam action.
Stephen Meagher and Mary Inman of Phillips
& Cohen, LLP (San Francisco) represented the
relator. HHS OIG, the U.S. Postal Inspection
Service, and DCIS investigated the matter.
TAF Quarterly Review
U.S. v. Worner v. Dianon Systems, Inc., No.
3:99CV407 (D. Conn.)
In December 2002, DOJ announced that
Dianon Systems had agreed to pay $4.8 million
to settle allegations of Medicare fraud. The
Government alleged that Dianon Systems, a
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Vol. 29 • January 2003
JUDGMENTS AND SETTLEMENTS
physical, occupational, and speech therapy services it provided to patients. This qui tam
action was filed by two whistleblowers in 2000.
The FBI and HHS OIG investigated the matter.
Connecticut-based lab specializing in cancer
testing, billed Medicare for medically unnecessary tests and improperly charged for investigational tests. Dr. Theresa Worner, a health care
plan claims reviewer, filed this qui tam action.
The relator’s share was $535,569. Robert Vogel
of Vogel & Slade L.L.P. (Washington, DC) represented the relator. HHS OIG and OPM OIG
investigated the matter.
Woodbine Healthcare and Rehabilitation
Centre
In December 2002, DOJ announced that
Woodbine Healthcare and Rehabilitation
Centre had agreed to pay $25,000 to settle allegations that it defrauded Medicare and
Medicaid. The Government alleged that
Woodbine, a Missouri-based nursing home,
requested federal reimbursements for basic
care that was not actually provided to its elderly residents. Special Assistant U.S. Attorney
Andrew Lay represented the Government in
this case. HHS OIG and the U.S. Postal
Inspection Service investigated this matter.
Raytheon Aircraft Company
In December 2002, Raytheon Aircraft Company
reportedly agreed to pay $3.99 million to settle
allegations of improper billing. The Government alleged that from 1988 to 1999 Raytheon
billed the Department of Defense for its aircraft
product liability insurance using an allocation
method not in compliance with cost accounting
standards, resulting in higher charges to the
Department of Defense. The Defense Contract
Audit Agency and DOD OIG investigated this
matter.
TENTATIVE SETTLEMENT:
In re Columbia/HCA Healthcare Corp., No.
01-MS-50 (D.D.C.)
U.S. v. Farkas, No. 00-8187 (S.D.N.Y.)
In December 2002, Tibor Farkas, Roxanne
Farkas, and Sanjeev Nath agreed to pay a total of
$831,000 to settle charges of Medicare fraud.
The Farkases will pay $531,000 while Nath will
pay $400,000. The Government alleged that
from 1994 to 2000 the Farkases and Nath
improperly sought excessive levels of reimbursements for their ophthalmology services.
U.S. ex rel. Schilling v. Columbia/HCA, No.
99-3289 (D.D.C.)
U.S. ex rel. Alderson v. Columbia/HCA, No.
99-3290 (D.D.C.)
In December 2002, DOJ announced that HCA,
formerly known as Columbia/HCA Healthcare
Corporation, had agreed to a tentative understanding to pay more than $880 million to settle allegations of health care fraud. This
amount includes $631 million in fines and
penalties to resolve all outstanding civil litigation with the Justice Department and $250
million to be paid to the Medicare program to
resolve expense claims. The Government
alleged that HCA submitted false cost reports,
Outreach Programs, Inc.
In December 2002, DOJ announced that
Outreach Programs, Inc. and several related
entities had agreed to pay $600,000 to settle
allegations that they defrauded Medicare from
1995 to 2001. The Government alleged that
Outreach Programs over-billed Medicare for
TAF Quarterly Review
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Vol. 29 • January 2003
JUDGMENTS AND SETTLEMENTS
false management fees and marketing expenses
from its wound-care centers, and that HCA
paid illegal kickbacks for doctor referrals. If
formally approved, this settlement, when
added to prior civil and criminal settlements
by HCA, would bring the Government’s total
recoveries to approximately $1.7 billion. Eight
whistleblowers filed separate qui tam actions in
this matter.
John Schilling and James
Alderson, represented by John Phillips of
Phillips & Cohen L.L.P. (Washington, DC),
filed suits related to the cost report fraud. The
other firms representing the cost report
whistleblowers are Heller Ehrman; Hennigan,
Bennett & Dorman; Irell & Manella; Boies
Schiller & Flexner LLP; and James, Hoyer,
Newcomer & Simljanich.
TAF Quarterly Review
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Vol. 29 • January 2003
FCA Conference Materials
Anniversary Reports and Video
•
•
As part of its information clearinghouse
activities, TAF has materials available for
distribution at conferences and other
programs. Information can be tailored
to a legal or general audience. Resource
material, including statistical information, is also available for those writing
articles on the FCA.
To mark the anniversary of the 1986 FCA
Amendments, TAF has available a variety
of resources including a Tenth Anniversary Report, an Assessment of Economic
Impact, and an educational video highlighting the effectiveness of the Act.
These materials are available at no charge.
Call for Experts and Investigators
Qui Tam Practitioner Guide
•
TAF NEWS
•
The TAF Qui Tam Practitioner Guide:
Evaluating and Filing a Case can be
ordered at no charge by phone, fax, or
mail. This “how to” manual includes
sections on evaluating the merits and
viability of a case, pre-filing and practical considerations, and preparing and
filing the complaint.
Qui Tam Attorney Network
•
TAF on the Internet
•
In response to inquiries, TAF is working
to compile a list of experts and investigators across an array of substantive
areas. Please contact TAF with any suggestions you may have.
TAF’s Internet presence is designed to
educate the public and legal community
about the False Claims Act and qui tam.
TAF’s site is located at http://www.taf.org.
TAF is continuing to build and facilitate
an information network for qui tam
attorneys. For an Attorney Network
Application or a description of activities, please contact TAF. Be sure to ask
about TAFNET, our electronic mail system for Attorney Network members.
TAF Library
Previous Publications
•
•
Back issues of the Quarterly Review are
available in hard copy as well as on
TAF’s Internet site.
Quarterly Review Submissions
•
TAF seeks submissions for future issues
of the Quarterly Review (e.g., opinion
pieces, legal analysis, practice tips). To
discuss a potential article, please contact
Quarterly Review Editor Bret Boyce.
TAF’s FCA library is open to the public,
by appointment, during regular business
hours. Submissions of case materials
such as complaints, disclosure statements,
briefs, and settlement agreements are
appreciated.
Acknowledgments
•
TAF thanks the Department of Justice
and qui tam counsel for providing
source materials.